@gur1 , having gone through the whole conversation ( to refresh my memory) and agreeing with @DaveF1006 on the situation and feasibility and method of filing a joint return, I first want to clear up my understanding of the situation/ scenario and add some thoughts.
1. Both spouses ( H-1 and H4 ) lived in the USA as residents for tax purposes from 2014 through 2021 August. Thereafter H1 spouse continued to live and earn in the USA while the H-4 spouse moved to Canada on work visa.
2. H-4 spouse lives , works in Canad and visits US time to time ( not long enough to maintain Resident for Tax purposes status.
3. Now the question is how to minimize 2022 Taxes ( file as MFJ or MFS or ? ) and how to recognize interest income from US bank ( held in joint name ? ) H-4 spouse has tax id ( SSN )
Assuming the above to be a generally accurate picture AND that there are no dependents involved ( no eligibility to use Head of Household filing status ), below are my thoughts
(a) MFJ filing status requires the H-4 spouse's foreign earned income to be subject to (/ recognized for) US taxes , at both federal and state level and the double tax burden ameliorated ( generally only at federal level) by :
1. by itemized deduction as part of the State & Local Taxes , but note that this is limited to $10,000 per return OR
2. Foreign Earned Income exclusion -- the limitation here are (A) to meet the Physical Presence Test ( 330 days at foreign tax home(s) in any continuous 12 month test period where the tax year is nestled in; (B) Tax home abroad ; (C) allocation of the yearly maximum exclusion to the actual days present in foreign tax home; (D) tax rate is modulated by total income, including excluded income; (E) once chosen, this method remains valid for a period ; (E) generally because this modifies the AGI, the State benefit of the exclusion is ly automatic; OR
3. Foreign Tax Credit --- here the limitations are (A) while the total credit is recognized US$ for US$, the allowable credit per year is based on a ratio of Total Foreign income to World income of the tax payers and therefore almost always results in less than the total foreign taxes paid; (B) the disallowed foreign tax credit can be carried forward or backward as long as there is foreign earned income.
(b) Married Filing Separate ( MFS), requires the H-1 spouse file as normal , recognize all US sourced income ( even if there are passive income ( like bank interest ) held in both names/SSNs --- NonResident Alien alien tax rate on passive income can be much higher ( flat 30% in many cases ). This also means reduced standard deduction but also lower AGI for H-1spouse.
(c) in case of H-4 spouse filing jointly and with foreign earnings, SECA/FICA ( Social Security and Medicare taxes ) rules comes into play ( even though ameliorated / modified by Totalization agreement between US and Canada. This needs to be considered with a view of the longer term plans of the taxpayers.
I hope this and items posted by @DaveF1006 ) together gives you enough to decide on the path forward.
Is there more I can do for you ?
pk
