You wife could be eligible to take the Foreign Earned Income Tax Exclusion, yes. But, in order to do that, you would have to first select Option # 2 from the broad choice list (either Options # 1 or # 2) that are given to US citizens with nonresident alien spouses, as was previously detailed. Next, you would have to include all of her 2016 worldwide income on this MFJ tax return (Japanese wages plus anything else); and then you'd be able to exclude most (or all) of her wage income, using the Foreign Earned Income Tax Exclusion method. That would be using filing Option # 2, and Form 2555. Please see the Form 2555 instructions, Page 3, Part III, "Physical Presence Test," left column, paragraph entitled "Note." You are not eligible for the Foreign Earned Income Tax Exclusion, as a US government employee. If choosing to file your US tax return jointly with your wife, using Option # 2, you will be unable to do so using TurboTax (the program simply lack the functionality to do this). Filing Option # 1, Married Filing Separately, remains a choice as well, and that can be done using TurboTax; by printing the tax return, paper filing, and following the IRS instructions for writing NRA or nonresident alien in lieu of the spouse's SSN. Thank you, and good luck to you both.
Link to Form 2555 instructions for 2016: <a rel="nofollow" target="_blank" href="
https://www.irs.gov/pub/irs-pdf/i2555.pdf">https://www.irs.gov/pub/irs-pdf/i2555.pdf</a>
