Clicking the "This was a California Middle Class Tax Refund (MCTR)" radio button does not help a bit. The California taxes still include taxes for the MCTR and, thus, remain higher than they should be.
If I understand correctly how California Form 540 and Schedule CA(540) are designed and work, Form 540 starts with the federal AGI and adjustments for differences to the federal tax return are then made by additions and subtractions from Schedule CA(540). Thus, I would expect an entry on Schedule CA(540) increasing the subtractions by the MCTR amount. The way this would work is an entry in Section B, line 8z, column B with the description "California Middle Class Tax Refund" as other income.
