So I go to an interview yesterday, and they mentioned a car allowance. This got me thinking. You still pay income tax on a car allowance right?  so WTF is the point?  why not just pay me more and be done with it?  What's the big deal about a car allowance?

Of course, if I'm wrong, and there's some IRS loophole around paying income tax on it then please enlighten me.

could be several things.
if say $700 car allowance per month were rolled into monthly wage and you received a 4% wage increase per year, in 5 years the $700 would = $852.  another reason may be that allownace can be stopped and it would be nasty to take away either $700 or componded amount $852 after a few years.  also if company has profit sharing or some kind of wage match scheme then you are plussing up the "car allowance"  and lastly company would be paying matching tax on car allownave.  a big comapny with many cars  could be a big tax bill.  bottom line is you are lucky to get car allowance.  be glad

Ummm, ok, some of that makes sense.  But here's how I look at it.
If I wind up owing money to the .gov at the end of every year, instead of getting a refund, then for me it sucks.  Especially if it comes down to "well, we'll pay you a little less than your current company, but when you add in the car allowance it's actually more".

car allowance should be included as what is know as imputed income.  some companys will plusup the amount( annual amount + tax) so actual impact to your tax = zero.  talk to the people making job offer to make sure that there is zero impact to your tax obligation on this issue.  good luck

Keep track of your business miles at the goverment rate.  34.5 cents a mile?  The diffrenct between the milage total and your monthly allowance would be income and considered taxable.  The car allowance would be to compansate you for using your personal vehicle for company business and the check should be seperate with no taxes taken out. It is up to you to keep records if the IRS ever visits and you haven't paid taxes on the allowance.  If you are paid $500 a month you better have the milage to prove it, daily record of where you have driven.  The company probably would not make it a larger sum to offset taxes because that would cost them more.