(ABC NEWS) -- Two hours after a midnight deadline for action, the Senate passed legislation early New Year's Day to avert the so-called fiscal cliff with an overwhelming vote of 89-8.
Senate passage set the stage for a final showdown in the House, where a vote could come as early as today.
"While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay," President Obama said in a statement shortly after the vote.
"There's more work to do to reduce our deficits, and I'm willing to do it. But tonight's agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans."
The bill extends Bush-era tax cuts permanently for individuals making less than $400,000 per year and couples making less than $450,000 but allows the top marginal tax rate on incomes above those levels to rise to 39.6 percent.
Capital gains taxes would rise to 20 percent from 15 percent.
The measure would raise the estate tax from 35 to 40 percent for estates larger than $5 million, prevent the alternative minimum tax from hammering millions of middle-class workers and extend unemployment benefits for one year.
Lawmakers also decided at the last minute to use the measure to prevent a $900 pay raise for each member of Congress due to take effect this spring.
The steep "sequester" budget cuts scheduled to go into effect with the New Year -- a $1.2 trillion hit to defense and domestic programs -- would be postponed for two months.
"I've said all along our most important priority is protecting middle-class Americans, this legislation does that," Senate Majority Leader Harry Reid, D-Nev., said early this morning prior to the vote.
The deal at hand does little to address the nation's long-term debt woes, however, and does not entirely solve the problem of the "fiscal cliff."
Indeed, the last-minute compromise -- far short from a so-called grand bargain on deficit reduction -- could set up a new showdown on the same spending cuts in two months amplified by a brewing fight on how to raise the debt ceiling beyond $16.4 trillion. That new fiscal battle has the potential to eclipse the "fiscal cliff" in short order.
Reid said he is "disappointed" they were unable to achieve a broader deal but that the compromise was necessary.
"We tried," he said. "If we did nothing, the threat of a recession is very real."
Speaking after Reid, Senate Minority Leader Mitch McConnell, R-Ky., called the deal an "imperfect solution" and noted this should not be the model on how things get done in the Senate.
McConnell also thanked Vice President Joe Biden, who visited Capitol Hill late Monday night and brokered the deal with Senate Republicans.
The measure must now move to the Republican-led House.
Five Senate Republicans and three Democrats voted against the plan, but the large margin of passage was seen as boosting the bill's prospects in the House, even though fiscal conservatives were poised to vehemently oppose the deal when it comes to the floor for a vote.
House Speaker John Boehner of Ohio said the House would not vote on any Senate-passed measure "until House members, and the American people, have been able to review" it.
House Democratic leader Nancy Pelosi of California issued a statement saying of the Senate bill that she "will present it to the House Democratic caucus," throwing her support behind the compromise.
Hours before the deadline, Obama, Biden and their aides were at work in the White House, and lights burned in the House and Senate. Democrats complained that Obama had given away too much in agreeing to limit tax increases to incomes exceeding $400,000, far above the $250,000 level on which he campaigned.
A late-night visit to Capitol Hill by Biden helped to convince Senate Democrats to get behind the plan.
"There is a feeling that it's not that this proposal is regarded as great or as loved in any way, but it's a lot better than going off the cliff," said Sen. Chuck Schumer, D-N.Y.
Sen. Dianne Feinstein, D-Calif., called the compromise the "best" that could be done.
ABC News' Matthew Larotonda and John Parkinson contributed reporting.