The tax increases are the biggest ever to hit Americans at one go.
Lawmakers in the US are still scrambling to reach an accord on this so-called 'fiscal cliff', which if doesn't happen is expected to drag the world's largest economy into recession, taking along with it several other major economies around the world.
Will the US go over the fiscal cliff? That's the big question staring at economists even as the stock markets around the world trade with caution on cues from the US Congress.
Here are five facts on what 'fiscal cliff' means for the US and the world economy, and how it can be averted:
1. The low tax rate regime enacted under Republican President George W Bush on a temporary basis and extended in 2010 under the Obama administration expires starting January 1.
This will have an impact on ordinary working Americans who will have to pay about 2 per cent more in income tax. The taxes on an individual's investment will also get increased, which includes capital gains and dividends.
The New Year will see the return of caps on personal exemptions and itemised deductions for upper-income taxpayers. All this had come to an end during Bush era.
2. More than two million unemployed Americans won't be receiving the US government's unemployment insurance. Figures suggest that about two lakh of these unemployed reside in New York. The US unemployment rate stood at 7.7 per cent in November, according to Labor Department figures, and if the economy slips into a recession, the rate is expected to stand at a very worrying 9.1 per cent.
3. Avoiding a fiscal cliff will mean extending the Bush-era tax cuts. Mr. Obama is not expected to budge on this as far as imposing of higher taxes on rich Americans is concerned. Even if the rich are taxed more, fiscal can be avoided by just extending Bush-era tax cuts for some months, if not all through 2013.
4. Americans blame the Republicans, who are the opposition in the US Congress, more than Democrats (led by President Barack Obama) for the "fiscal cliff" crisis, a recent Reuters poll has shown.
When asked who they believed to be more responsible for the fiscal cliff situation, 27 per cent blamed Republicans in Congress, 16 per cent blamed Obama and 6 per cent pointed to Democrats in Congress. The largest percentage - 31 percent - blamed "all of the above".
On the positive side, 67 per cent of Americans polled in the online survey said the impending fiscal cliff was not affecting their holiday spending.
5. Lawmakers are now looking at the period immediately after the December 31 deadline to come up with a retroactive fix to alleviate the impact of the return to higher tax regime. If Friday's meeting fails to arrive at a deal, lawmakers would come back in January and take a more politically palatable vote on cutting some of the tax rates.
With inputs from agencies