You are right.
You didn't say what kind of 1099 form the employer is issuing. I assume it's a 1099-NEC. Here's how to report the 1099-NEC correctly on your tax return, in spite of the employer's error.
After you enter the 1099-NEC in TurboTax you will come to a screen that asks "Does one of these uncommon situations apply?" Select "My employer reported this extra money on a 1099-NEC but it should have been reported on a W-2." Then click Continue. On the next screen select "I received Form W-2 and this Form 1099-NEC, but all the income reported on this Form 1099-NEC should have been included on my Form W-2." Then just read the next couple of screens and click Continue.
TurboTax will include Form 8919 in your tax return. The car allowance will be reported as wages on Form 1040 line 1g. Form 8919 calculates the Social Security and Medicare taxes that your spouse's employer should have withheld on the car allowance. The total of these taxes will appear on Schedule 2 line 6 and will be included in your total tax liability.
