@BobKamman Correct, the Oregon Surplus Credit, aka the Kicker, is based on tax paid.  So on the 2021 tax return we picked up 2020 tax before most credits and multiplied it by 17.341% to determine the Kicker.  Which isn't necessarily a fair method given it doesn't factor in the two year budget period in which the surplus was created.  For instance, I just did a 2022 return for someone who sold a couple of rentals who will pay about $33k in state tax for the year that the credit will be calculated.  If they had been sold in 2021 and he had a zero tax in 2022, he wouldn't get a Kicker credit. 

The name, Middle Class Tax Refund, mucks up the the works since the MCTR eligibility doesn't have a tax liability requirement.  I'm sure some folks who received the MCTR didn't have a tax liability in 2020, so not really a refund.  So it wouldn't make sense to give it the state tax refund treatment.  

It seems more like the EITC without a requirement for earned income.  Meaning it shouldn't be taxed.

If the funding came from disaster funds CA just had laying around, that would seem to exclude it from federal taxability.  But I'm sure we would have heard that by now from CA.

I agree that IRS is looking at it and thinking "What the heck are we supposed to do with this one??"  And hopefully will go with the general welfare exclusion.