Thank you for the answer, this clears up a lot. It looks like I would have to use option 1 because my spouse was tax exempt for the first 2 years which makes the presence test fail. Considering in 2016 my spouse had 167 days but 1/3 is ~57days plus 31 this month is less than 183 days needed.
My new question is... what form is used to show worldwide income as my spouse has none anyways? My spouse does have an SSN number so W-7 form would not be needed, however it would be needed for the J-2 visa holder to claim as a dependent.
By making the statement we wish to submit jointly as US Resident, does that also apply down to the J-2 visa holder?
