No, TurboTax is doing the California return correctly.
California does not allow the deduction of any HSA contributions, whether from you or your employer.
Since the code W amount in box 12 of your W-2 was removed from Wages in box 1 before your W-2 was printed, this same amount has to be added back to California income when the CA return is started.
Both your employer's contributions and your contributions through payroll deduction are collectively called the "employer contribution" because they are treated the same way on your tax return.
This is not sloppiness on the part of TurboTax, but the way that the IRS uses the terminology.
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