Why is TT calculating tax based on gross distribution and not taxable amount. 1099R correctly shows gross, taxable and NUA amounts from company stock distribution.

No.  Make sure you did not check the "taxable amount not determined" box.  The amounts in box 2a plus 6 should equal the gross distribution amount in box 1.  You should have also received a 1099-B to reflect the sale of the stock back to the company (If this is an ESOP).  The NUA would be reported in the capital gains section of TurboTax with the $4000 being taxed at the long term capital gain rate, probably 15%.  

I ran your scenario through TurboTax and the box 2a amount came through as the taxable amount.  You may want to delete the 1099R and re-enter making to indicate it is an IRA and you are not receiving periodic payments.  It is also a qualified plan.  I did indicate a 7 for your box 7 code.   After you have logged in and are in your return in TurboTax Online:

• Go to Search at the top of the screen.
• Enter Form 1099-R in the search box. 
• You will see a Jump To function that will take you to the 1099-R input screens. 
• Delete the 1099R in question by clicking on the trash can next to the form
• Then add a new 1099R and manually enter your 1099R.

At the financial services screens, click "Change how I enter my form" then "Type it myself"

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@whunter9 wrote:
I took a distribution of company stock from my 401k in order to receive favorable NUA tax treatment. My 1099R correctly shows the gross distribution (box 1), taxable amount (cost basis of stock - box 2a) and NUA value (box 6). However turbotax is calculating the tax based on the gross distribution and not the taxable amount. Is there a different way I need to input this data into turbotax to have the tax calculated on just the taxable amount shown in box 2a?

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Are yiu looking at the 1040 line 5b for the taxable amount?