If a person works in one State, and there is no exception in that State to taxable wages that is different than Fed, then Fed and State wages are the same. If a person works in two States, such as your person works in Oregon sometimes and in CA sometimes, then each State would be an amount. And some States, such as NY, taxes income by Source, so the people who live in NJ and work in NY have to report all the income to NY, even if some of the work was done in NJ; NJ is then going to have an offset for the part not in NJ.

"There is $4,000 that the IRS did not allow a pre-tax deduction."

How does that have any bearing on what you are describing? Here's what you seem to describe: the employer has reported the amount that your taxpayer had deducted post-tax to pay for coverage for their RDP.

That has no tax treatment of any kind. It's just their personal money, because it was paid from what would have been takehome. It's no different than if they paid for that health care premium personally, paid the Vet for their animal care, or took a fancy trip on it.

And you have proof of coverage for your taxpayer and RDP, which matters in CA, for MFS.

"Should I adjust the CA income down by that $4,000"

You are asking about the Gross Pay, which has been reported and taxed and that is what the person Earned and how they can afford to pay their bills, including this RDP coverage.

"or do I use the number on box 16?"

Why would you try to do otherwise? You have the W2. You don't change the reported values. You are not the employer. You did not issue that document.

I'm still not seeing your reference to anything that explains why you think something has been reported incorrectly.

Not everything in payroll qualifies for pre-tax deduction; that's why it is done post-tax. Do you think the employer did it wrong?