How do we account for my spouse (married filing jointly), if she is not a U.S. citizen, but working at U.S. consulate overseas, paid in local wages + pays foreign taxes?

@HartmannSE   two points:

(a) your spouse is not US citizen/ Resident and therefore her income is  NOT taxable by the USA as long as she  does not file jointly with you ( a US citizen/Resident).

(b) If your spouse and you both agree  ( and so request with a note attached to the IRS ) for her to be treated as a US resident, then you two can indeed file as Married Filing Joint --- but this means that her  world income is taxed by the USA.  That income which is taxed by both the USA and the foreign tax administration may be eligible for  US foreign tax credit  ( not  that in such a case  you may have to  "resource" the income to that country so TurboTax can compute  the foreign tax credit.

Does this help or do you need more -- in that case  please  provide -- your own immigration status, where are you located, her citizenship, are you employed by the USG or a local entity, do you maintain a household for your children(if), does your wife live with you at the location etc. etc.