Only phantom to me I suppose.  Each time I load Mach, jog Z to the surface and then zero it.  First run of any code will run at 0.50" above my intent.  I hit stop and have it go to x0, y0, z0.  Then use jog/step to move z down 0.50", set Z to zero.  It then runs fine.  Even if I change the gcode it will run correctly.

So, it seems I put something in a setup somewhere.  I thought that I drilled down through all the settings, but can't find it.

Any ideas on what I did?

Steve.

BTW - even the extents knows about the 0.50" and shows the additional dimension

On the toolchange tab, do you have a value in Material Offset, and is it checked?

no value in that tab.

I loaded an older file and the "limits" didn't show the extra 1/2".  I loaded a more current and it did, so something from Vectric.  Below is the first portion of code, uses the drag knife gadget in Vectric to cut veneer;

( File created: Friday, May 09, 2014 - 12:50 PM)
( for Mach2/3 from Vectric )
( Material Size)
( X= 12.000, Y= 12.000, Z= 0.020)
()
(Toolpaths used in this file:)
(Roubo Lozenges bulk V6)
(Tools used in this file: )
(1 = Dragknife End Mill)
N100G00G20G17G90G40G49G80
N110G70G91.1
N120T1M06
N130 (Dragknife End Mill)
N140G00G43Z0.2210H1
N150S0M03
N160(Toolpath:- Roubo Lozenges bulk V6)
N170()
N180G94
N190X0.0000Y0.0000F150.0
N200G00X11.9500Y1.8158Z0.2200
N210G1Z0.0110F30.0
N220G2X11.7500I-0.1000J0.0000F150.0
N230G1Z0.0100
N240G1X0.2500
N250G00Z0.2200
N260G00X11.7500
N270G1Z0.0000F30.0

Try removing the line with the G43. Might be a tool length offset.