TurboTax is not treating the California MCTR payment as taxable if the user identifies it as such.
In TurboTax Online, when entering Form 1099-MISC, at the screen "Does one of these uncommon situations apply?", select "This was a California Middle Class Tax Refund (MCTR)". At the bottom of the screen, a statement appears that this item will not be taxable on your California or Federal returns.
The IRS just announced today that the payments are not considered taxable and don't need to be entered on the Federal return.
When I enter the 1099-MISC for the CA MCTR (California Middle Class Tax Refund , yes I did select the "uncommon" box stating that it is the CA MCTR) my Federal Taxes are not changed but my California Taxes INCREASE! On the California Schedule CA Section B line z Turbotax automatically inputted CA payment $700 and CA payment - general welfare exclusion -$700, so I can't subtract the $700 again. Why does this happen? and now do I fix it? Deluxe, CD version, MAC
The IRS decision is "the CA MCTR is not taxable" taxpayers do not need to enter it on their tax return. Go back to the "Wages and Income" and delete the CA MCTR 1099-MISC form information.
Here is the IRS decision for reference.
Once this is corrected on my already accepted taxes, how do I refile in order to correct my return? Will Turbotax allow me to e-file the correction?
Yes, you will be able to file an amended tax return through TurboTax which will correct the error and get you a refund. But first, make sure you wait until the IRS has completed processing your return and issued your previous refund or processed payment for your original return. The IRS is aware that by making this late announcement they have caused massive inconvenience for taxpayers and they may just correct the return you filed and issue the refund immediately.
If they don't do the correction for you then you will log in to your TurboTax account and click 'amend a previously filed return'. The system will help you out from there.