Can I file as married filing jointly with my U.S. citizen wife who lives abroad and babysits?

You're on the right track! As a U.S. citizen, your wife is subject to U.S. tax reporting requirements regardless of where she lives in the world. And yes, you can file as married filing jointly even if she lives abroad. Since she's earning income through babysitting, that would indeed be considered self-employment income. This means she'll need to file Schedule C to report her business income and expenses, and she'll also be subject to self-employment tax (Social Security and Medicare taxes). One thing to be aware of: if she's earning income in another country, she may qualify for the Foreign Earned Income Exclusion (Form 2555) which could exclude up to $120,000 (for 2023) of her foreign earnings from U.S. income tax. However, this doesn't exempt her from self-employment tax unless there's a totalization agreement between the U.S. and the country she's in. Also, if she has foreign bank accounts with a combined value over $10,000 at any point during the year, you'll need to file an FBAR (FinCEN Form 114).

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Something to consider that no one has mentioned yet - if your wife is earning babysitting income in her country of residence, she might also have tax obligations there! I learned this the hard way when my wife was teaching English in Japan. Just because she's a US citizen doesn't mean she's exempt from local tax laws where she physically works. You'll need to look into the tax treaty between the US and her country to understand how to avoid double taxation.

One more thing to think about - if your wife has any foreign bank accounts and you're filing jointly, you both need to report ALL foreign accounts on the FBAR form, even if they're only in her name. The threshold is $10k combined across all accounts at any point during the year. And just fyi, the penalties for not filing FBAR when required are CRAZY high, even for innocent mistakes. Like potentially $10k per violation.