Yeah, I like Annette, I'm on another group with her.  While I agree with her that calling $500,000 of income "middle class" is pretty ridiculous, I recognize the state legislature's authority to define it as they please.  Most of her argument seems to be that the program wasn't fair.  Can't exactly dispute that either, her points are completely valid.  But with state-based EIC programs in place in many (most?) states at this point I don't see this as being much different.  Most states require a tax return filing for EIC payments (which have been deemed non-taxable general welfare).  The state doesn't walk around handing out food stamps (or maybe they do in CA, who knows) so simply being needy doesn't get you a general welfare benefit, you have to meet the conditions of the program and apply for the benefits.  The conditions on this CA program were dumb and only applied to people with an appropriately souped up DeLorean who could go back in time and file a CA return even though the instructions told them not to.

Meanwhile, tax season has started and if the IRS wanted these to be taxable they should have given the TurboTax programmers a heads-up.  I'm sure thousands of returns have been filed excluding this income (right or wrong).