A bipartisan agreement has been reached to extend soon-to-expire Bush era tax cuts to all Americans, President Barack Obama has announced
Referring to the bitter wrangling over the issue, Mr Obama said he would not "let working families become collateral damage for political warfare".
Some Democrats have said the deal, which must be voted on by Congress, is too generous to the wealthy.
Unemployment benefits will also be renewed under the agreement.
The BBC's Steve Kingstone, in Washington, says the deal represents a climb-down by President Obama.
It marks a reversal of his position, first laid out in his 2008 campaign, that tax cuts should only be extended at incomes up to $200,000 for individuals and $250,000 for couples.
Following November's mid-term elections, when the new Congress convenes next month Republicans will control the House of Representatives and hold increased power in the Senate.
Mr Obama's announcement came two days after the US Senate rejected President Obama's preferred tax plan.
Elements of the framework deal include:
- A two-year extension of income tax cuts for all Americans enacted in 2001 and 2003 under former President Bush
- A 13-month extension of unemployment benefits for the long-term unemployed
- A 35% tax for two years on estates worth more than $5m
- A Social Security tax cut that would see the tax drop from 6.2% of pay to 4.2% for one year
- Allowing businesses to write off all their capital investments for tax purposes during 2011
- Extending the Earned Income Tax Credit, the child tax credit and tuition credits
Mr Obama said there were elements of the deal that he opposed - including an extension of tax cuts for the wealthiest 2% of Americans.
But he said striking a deal with Republicans was more important than allowing the tax cuts to expire on 1 January 2011 amid a political stalemate.
He said it would be a "grave injustice to let taxes increase" for ordinary Americans.
"Make no mistake, allowing taxes to go up on all Americans would have raised taxes by $3,000 for a typical American family and that could cost our economy well over a million jobs," he said at the White House.
Republicans praised the president's decision following the press conference on Monday night.
"I appreciate the determined efforts of the president and vice-president in working with Republicans on a bipartisan plan to prevent a tax hike on any American and in creating incentives for economic growth," said the Republican leader in the Senate, Mitch McConnell.
Mr Obama's announcement at the White House on Monday was held shortly after the president's return from a trip to North Carolina, where he said Congress must "make sure we're coming up with a solution, even if it's not 100% what I want or 100% what the Republicans want".
It also came a week after the government reported that joblessness in the US had risen in November to 9.8%.
With the agreement on tax cuts finalised, analysts say Congress may now focus its attention on holding a debate over whether to ratify the New Start Treaty, which seeks to reduce the nuclear arsenals of both the US and Russia and allow each to inspect the other's facilities.