My wife works for a foreign government in the US at an embassy. She is a lawful resident but not a US citizen. Is she required to pay taxes on the embassy income?

[LinaJ2018]

No, she is not required to pay any US tax if meets the requirements.

Per IRS, 

• If you are an employee of a foreign government (including foreign municipalities) your wages are exempt from U.S. income tax by:

  -A provision in a tax treaty or consular convention between the United States and their country, or

  -Meeting the requirements of U.S. tax law

  If she doesn't qualify under a tax treaty provision, she may still qualify for an exemption by meeting the following requirements of U.S tax law. 
  

• If you are not a U.S. citizen, or if you are a U.S. citizen but also a citizen of the Philippines, and you work for a foreign government in the United States, your foreign government salary is exempt from U.S. tax if you perform services similar to those performed by U.S. government employees in that foreign country and that foreign government grants an equivalent exemption to U.S. government employees.

• To qualify for the exemption under U.S. tax law, either the U.S. Department of State must certify that you perform services similar to those performed by employees of the government of the United States in foreign countries and that your foreign government employer grants an equivalent exemption to U.S. government employees performing similar services in its country or you must establish those facts.  

• If you are a green card holder employed by a foreign government or international organization, you are not subject to self-employment taxes and may not voluntarily participate in the U.S. social security system.

Please see attached links for more information

Foreign embassy

Self-Employed Tax

[RSKA]

How do you exempt this income through TurboTax? We have the same situation for my spouse and I can't find where to select that. I'm using Turbo Tax Home & Business 2019.

[KarenJ2]

After entering your wages, you will need to enter the amount of the income that is exempt as a negative number as follows;

1. Open your return in TurboTax 

2. Click on Wages & Income 

3. Scroll down to All Income 

4. Scroll down to Less Common Income 

5. Scroll down to Miscellaneous Income, 1099-A, 1099-C 

6. Click start 

7. Scroll down to Other reportable income 

8. Answer yes 

9. Enter wage description and amount (as a negative number, which will zero out your wages)

You will need to attach Form 8833 if you are claiming a treaty position or a certification from the Department of State as indicated in the previous answer.  As such you will need to print and mail your tax return.