multipy mileage x IRS allowable per mile rate (was 50 cents, don't know if that's changed for 2010 tax year since I've yet to file). Anyhoo, multiply miles times rate and enter that as an unreimbursed business expense on your tax return. That amount will be subtracted from your taxable income. Unless your location is different, which I doubt since payroll is a corporate function, your car allowance is included in your paycheck as income and is subject to withholding. Therefore, to back that out of your taxable you will need to use your TOTAL mileage when itemizing. Basically, the car allowance you get is TAXABLE income until you show otherwise when you itemize your deductions on your tax return. For example, if you get 400 bucks a month car allowance that will add $4800 dollars to your taxable income. Now, let's say you drove 250 miles per week and worked 50 weeks for a total of 12,500 miles. Take the 12,500 miles and multiply by the IRS per mile rate of 50 cents and you have $6250 of unreimbursed business mileage. This means your taxable income will be reduced by 6250 bucks. So in the final analysis, you won't pay taxes on the 4800 of car allowance or the 1450 difference. Basically the 4800 is a wash; you received it as taxable income throughout the year and when you file it comes back off your taxable. Your taxable income is further reduced by 1450 for the mileage over what was covered. This DOES NOT mean you reduce your taxes owed by 1450, you just reduce the amount of income that is taxed by 1450. Your tax rate will determine how much your actual tax bill is reduced. It eases the blow some, but you still loose majority of what you spent over what was covered. Regarding the other post, the type of car doesn't matter; the IRS rate is the same for all cars, vans, pickups or panel trucks (info below taken from IRS site)
Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
50 cents per mile for business miles driven
16.5 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations
Best of luck!