If our company pays a $300/month allowance to an employee to compensate them for using their personal vehicle for work, would we have to include it as taxible wages on either their W2 or separately on a 1099-MISC?

In other words, can it be expensed?

Report separately on schedule C or C-EZ (Form 1040). Claim the mileage deduction.

Monthly car allowances should be included as taxable wages on the employee's W-2. The employee can then deduct business mileage as an unreimbursed business expense.