Obama wanted Bush Administration tax cuts to expire at the end of the year for the taxpayers earning $200,000 annually ($250,000 for couples).
Unemployment insurance will be extended for 13 months.
There will be a 2-percent cut to payroll taxes next year.
In exchange for the temporary extension of the Bush Administration tax cuts, the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax credit for students in college will all remain protected.
New incentives for business investments will be provided in the future, but they were not specified in Obama's announcement.
Obama said there were elements of the deal he personally opposed, including an extension of expiring income tax cuts at upper income levels and a more generous deal on estates. But he said he decided that an agreement with Republicans was more important that a stalemate that would have resulted in higher income taxes at all income levels on Jan. 1.
"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.
Democrats have repeatedly raised objections to including the upper-income in any plan to extend tax cuts enacted in 2001 and 2003 when George W. Bush was president. The Democratic-controlled House recently passed legislation to let the cuts lapse on incomes over $200,000 for individuals and $250,000 for couples. On Saturday, Republicans blocked an attempt by Senate Democrats to do the same.
Republican leaders said it's not a matter of if the Bush-era tax cut are extended but how long they'll be in place.
Without Monday's deal, lawmakers faced the prospect of delivering a tax hike to all taxpayers at the end of the year, when the current rates expire and revert to higher pre-2001 and 2003 levels.
The Associated Press contributed to this report.