What is the correct translation/specific word for kidding in German in this context?
My proposal avoids harsh words:
Du nimmst mich wohl auf den Arm?!
“You got to be kidding me!”: “Du machst wohl Scherze!”, or vulgar: “Du willst mich wohl verarschen!” You can translate “kidding” with “Scherz”.
Das kann doch nicht wahr sein! (That can't possibly be true!) communicates a level of astonishment that is included in "You've got to be kidding me!"
Verarschen has an implication of making fun of the person. (Making them look like an ass.)
If you look on Leo you will also find "veralbern".