The US Senate has approved a deal to avert the "fiscal cliff," an automatic tax rise and spending cuts across the board, though the deadline had lapsed. The year-end deadline to reach the deal expired at midnight on 31 December (05:00 GMT 1 January 2013).
A House of Representatives approval of the deal is expected on Tuesday. Approval of both houses of Congress is required for the deal to have legal sanction.
The deal was approved following lengthy deliberations between Vice-President Joe Biden and Senate Republicans.
The deal agreed upon by the White House and the Republicans allows tax hikes for individuals earning more than $400,000 (£246,000) and couples taking more than $450,000, a first-time development in about two decades and retains unemployment benefits. It also postpones the spending cuts termed as sequester which will see $1.2tn cut from the federal budget over 10 years, by two months.
The extension will allow the both Congress and the White House to reopen negotiations on a wider deal. President Obama has released a statement following the Senate approval of the deal.
Statement from Barack Obama
"Leaders from both parties in the Senate came together to reach an agreement that passed with overwhelming bipartisan support today that protects 98 percent of Americans and 97 percent of small business owners from a middle class tax hike. While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay.
"This agreement will also grow the economy and shrink our deficits in a balanced way - by investing in our middle class, and by asking the wealthy to pay a little more.
"What's more, today's agreement builds on previous efforts to reduce our deficits. Last year, I worked with Democrats and Republicans to cut spending by more than $1 trillion. Tonight's agreement does even more by asking millionaires and billionaires to begin to pay their fair share for the first time in twenty years. As promised, that increase will be immediate, and it will be permanent.
"There's more work to do to reduce our deficits, and I'm willing to do it. But tonight's agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans. And as we address our ongoing fiscal challenges, I will continue to fight every day on behalf of the middle class and all those fighting to get into the middle class to forge an economy that grows from the middle out, not from the top down."