The US House of Representatives followed the Senate in approving a bipartisan bill late Tuesday to avoid tax hikes and postpone spending cuts that some analysts had warned could tip the economy back into recession.
The House voted 257-167 in a late-night session less than 24 hours after the Senate approved it by a vote of 89 to 8.
Only 85 of the 242 Republicans voted for it, but they did not push for an amendment to retain some immediate spending cuts which would have sent the bill back to Senate for another round of approval.
President Barack Obama, who interrupted his holiday in Hawaii for the New Year's Day session, said he would sign the compromise bill into law but warned the battle against the deficit would continue.
"The fact is the deficit is still too high, and we're still investing too little in the things that we need for the economy to grow as fast as it should," he said. "We can't simply cut our way to prosperity.
The agreement allows tax cuts implemented under former president George W Bush to expire for individuals earning more than 400,000 dollars a year and families earning more than 450,000 dollars.
It also postpones across-the-board cuts of 10 per cent to public expenditure, including social programmes and defence, by two months.
The bill also extends for another year emergency unemployment insurance benefits for 2 million people whose payments were about the expire. Republicans complained that it added 30 billion dollars to the cost of the legislation.
The tax increase and spending cuts had threatened to deal the world's largest economy a combined blow of 600 billion dollars.
The White House said the tax deal provided certainty for 114 million US households. It had been estimated that a typical family of four would have experienced an immediate tax increase of 2,200 dollars per year had the bill not passed.
But Republicans were left dissatisfied with the postponement in spending cuts, saying the debate and uncertainty over spending will continue.
The fiscal cliff was set up in August 2011 when a divided Congress drew up a drastic fiscal plan to force it to develop a more reasonable approach by the last day of 2012.

But work on that approach was disrupted by elections in November and prolonged political bickering.

The nation's debt has ballooned to 16 trillion dollars due to several factors over the past decade, including the Bush-era tax cuts, the wars in Iraq and Afghanistan, a recession and the financial and housing crises.