Vermont Charitable contribution being mistakenly reduced by Federal charitable amount

I don't know for a fact, but I would assume the opposite.  Your Federal AGI already reflects the deduction  in the AGI amount that transfers to VT. So being able to deduct it again, on the VT return,  would amount to a double deduction.  Although the 2nd deduction is actually a $15 tax credit (5% of the $300 federal deduction).

Hal_Al is quite correct.

If you have entered the cash donations on the federal return and in the Review, you entered the $300 (or whatever) to be placed on line 10b on the 1040, then the federal Adjusted Gross Income (line 11 1040) is reduced by $300.

This flows through to the VT return on line 1 on the IN-111, where this amount is reduced the moment that the $300 goes on line 10b on the 1040.

That is why it is removed from the other contributions on the Vermont return - just as Hal_Al says, it would be double-dipping otherwise.

100% Correct! How difficult was it to correct this Turbo Tax error?

Peony1, you're quite correct. 

There is no mention of the "adjustment" that TurboTax applies in the VT 2020 instructions or on the VT Tax website.  I just had my VT state e-file rejected because of the "error" here -- TurboTax is promising an update on 4th March to correct so I can e-file again.

The "up to $300" deduction on the Fed 1040 (line 10b) does indeed reduce the AGI (line 11) -- it would have been more sensible/equitable for the IRS to apply any such deduction below the AGI but they didn't -- probably per last tax law revisions.

The VT 2020 tax form (IN-111) starts with the Federal AGI on line 1 and proceeds to compute VT Taxable Income (line 7) and VT Income Tax (line 8).  Then it takes the Federal Charitable Contributions (line 11), multiplies by 5% (line 12) and reduces the VT Income Tax by that amount (line 13).

So taking the Federal deduction to AGI and not adjusting the VT charitable deduction is sort of "double-dipping" as Hal_Al & BillM223 suggest.  However, reducing the Federal Charitable Contributions entered on IN-111, line 11 by the amount of the 1040,  line 10b deduction really isn't the solution -- we are comparing "AGI-side apples" with "Tax Deduction side oranges".

The VT 2020 IN-111 has not reacted to the change on the 2020 1040 -- the right approach would have been to add back the "up to $300" deduction to the Federal AGI at the top of the form.

The problem is that the forms and instructions for the 2020 Tax Year have been printed and distributed -- hard to get updates for forms printed on paper!

At the end of the day, the difference from a dollar point of view will be small.  What is wrong is that TurboTax took it upon themselves to "correct" the problem without appropriate guidance and/or authority from the VT Department of Taxes.

It will be interesting to see what the promised TurboTax update of 4th March does.

So, Peony1, hold off e-filing your VT taxes until after 4th March.

Hope that helps.

UPDATE! 

I received a notification from TT that an update to correct this problem will be issued on March 4, 2021 that will correct this problem.