Your employer should not have reported the vehicle allowance on a 1099 form. Instead, they should have simply included this as part of your taxable wages reported on your W-2 form.
A 1099 form is used for independent contractors who perform services for a company. The payments you received were in connection with your regular employment, and not for services rendered as an independent contractor.
The problem with the employer issuing the 1099 form and reporting this in box 7 is that the IRS treats this as income from self employment, which must be reported on Schedule C and is also subject to the full share of SS and Medicare taxes, which your employer should be paying half of.
You can refer your employer to Publication 463 which states the following:
Reporting your expenses under a nonaccountable plan. Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay. Your employer will report the total in box 1 of your Form W-2.
You should ask your employer to void the 1099 form and to issue you a corrected W-2 form to include this amount as part of your regular taxable wages. Otherwise you not only have extra tax forms to fill out, but you get stuck paying the full share of SS and Medicare tax on this amount instead of your employer paying half of those taxes as they are required to do.
If this was helpful please press the Accept button. Positive feedback is also appreciated.
Thank you bubbaearl