Millions of people in need will receive higher state benefits and more thorough support from the job centers in the coming year.
On Wednesday evening, the mediation committee cleared the way for citizen income.
The Union and the traffic light coalition had previously agreed on a compromise on Tuesday.
Citizens' income will start on January 1, 2023 with significantly higher standard rates in basic security.
However, essential parts of the reform will not come into force until July 1st: The job centers are to draw up a cooperation plan with each and every unemployed person concerned, in which the planned path back to regular work is determined.
Chancellor Olaf Scholz (SPD) had defended the reform again in the morning against earlier criticism from the Union.
What distinguishes the federal government and the CDU and CSU is "apparently the image that we have of the citizens of our country".
In their eyes, the CDU and CSU had criticized the rules for being too lenient and warned that those affected could take advantage of them at the expense of taxpayers and contributors.
In the current crisis, many people are not only worried about high energy and food prices, but above all about their jobs and the future of their business, said Scholz.
"That shows one thing very clearly: the citizens want to work and they want to be able to make a decent living from their work."
Because the Bundesrat, unlike the Bundestag, had not approved the draft by Labor Minister Hubertus Heil (SPD), the mediation committee was called upon.
The committee made up of the Bundestag and Bundesrat had now come together for a meeting.
Both houses should finally agree by Friday.