If this is from a non-accountable plan (she is not required to report or prove mileage) then it is correctly reported as taxable income, but I agree that everything an employer pays an employee as compensation for their services must be included on their W-2 and subject to withholding. Using form 8919 with reason code H is the correct answer.
If this is reimbursement on an accountable plan (she has to report mileage and is only reimbursed for her work-related mileage) then this should not be taxable at all, and I have a couple of thoughts about how to deal with that.
Also, if you agree that it is taxable, but you included a schedule C in 2021, 2022 or 2023, it is not too late to file an amended return to remove the schedule C and report the 1099 on form 8919 instead. You would get a partial refund of the self-employment tax she paid.
