A Democratic aide says the White House and congressional Republicans have reached an agreement to avert the so-called fiscal cliff of impending tax hikes and spending cuts.
The measure would extend George W Bush-era tax cuts for family incomes below US$450,000 ($544,000) and briefly avert across-the-board spending cuts set to strike the Pentagon and domestic agencies this week.
Vice President Joe Biden was set to sell the agreement to Senate Democrats at a meeting at the Capitol on Monday night.
The aide required anonymity because he wasn't authorised to speak publicly.
Earlier today, working with Congress against a midnight deadline, US President Barack Obama said that a deal to avert the "fiscal cliff" was in sight but not yet finalised.
"There are still issues left to resolve but we're hopeful Congress can get it done," Obama had said at a campaign-style event at the White House. "But it's not done."
In the building New Year's Eve drama, the parties still were at an impasse over whether to put off the automatic, across-the-board spending cuts set to take effect at the beginning of the year and if so, how to pay for that.
One official said talks were focused on a two-month delay in the across-the-board cuts but negotiators had yet to agree on about US$24 billion in savings from elsewhere in the budget. Democrats had asked for the cuts to be put off for one year and be offset by unspecified revenue.
The president had said earlier that whatever last-minute fixes were necessary, they must come from a blend of tax revenue and constrained spending, not just budget cuts.
Without an agreement approved by Congress at the start of the New Year, more than US$500b in 2013 tax increases would take effect immediately and US$109b in cuts will be carved from defence and domestic programmes.
Though the tax hikes and budget cuts would be felt gradually, economists warn that if allowed to fully take hold, their combined impact — the so-called fiscal cliff — would rekindle a recession.
Unemployment benefits would be extended for one year. Without the extension, 2 million people would lose benefits beginning in early January.
Letting tax rates rise for couples with incomes of US$450,000 a year is a concessions for Obama, who campaigned for re-election on a pledge to set the levels at US$200,000 for individuals and US$250,000 for couples. It also marked a significant concession by Republican leaders who pledged to continue the George W Bush-era tax cuts for all income earners.
The hope of the White House and lawmakers was to seal an agreement, enact it and send it to Obama for his signature before taxpayers felt the impact of higher income taxes or federal agencies began issuing furloughs or taking other steps required by spending cuts.
Regardless of the fate of the negotiations, it appeared all workers would experience a cut in their take-home pay with the expiration of a two-year cut in payroll taxes.