TurboTax is handling the HSA in CA correctly.
"1. W2 Box 12 w is total HSA, whereas it is taken for Employer share (typically much less than Employee share) of HSA contribution and added to CA income. Tax payers end up paying more in CA Taxes. "
The issue is the IRS terminology, which very few taxpayers (and tax professionals) understand.
The code W amount in box 12 on your W-2 is called the "employer" contribution. But this is NOT because the employer contributes it, but because the employer's actual contribution is bundled with employee's contributions by payroll deduction and are bundled together and treated the same way. The most important thing is that the code W amount is removed from Wages in boxes 1, 3, and 5 before the W-2 is printed.
This means that there is no HSA deduction for this, because the "employer" contribution was never in your income in the first place.
The HSA deduction on line 13 on Schedule 1 (1040) is for any HSA contributions that you sent directly to your HSA custodian (i.e., not through your employer).
So, the upshot is that when California adds back the "employer" contributions to state income, it is correctly adding back both the employer's actual contributions and your contributions by means of payroll deduction.
So, yes, taxpayers end up paying more in CA taxes because they are supposed to.
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