The accord would also renew expiring jobless benefits for millions of others and prevent a pay cut for doctors of elderly Medicare patients.
The comprehensive agreement represents a victory for President Barack Obama and his fellow Democrats in Congress, and allows Republicans to put behind them a tax debate that threatened to hurt them in the November elections.
Economists say the tax cut extension and renewal of jobless benefits should provide a lift to the U.S. economy, certain to be a key issue in the battle for control of Congress and the White House in the run-up to Election Day.
"We have reached an agreement and we're moving forward," Republican Representative Dave Camp, who headed the negotiating committee, told reporters shortly after midnight EST on Thursday.
It was not immediately clear when the House of Representatives and Senate would vote on the deal, but lawmakers hoped to do so before they leave Friday for a week-long recess.
While congressional leaders announced a deal, they said a few undisclosed details had to be resolved before the agreement could be turned into a final bill. They expressed confidence this would be done quickly.