"Treasury expects to hit the statutory debt ceiling between January 14 and January 23," Yellen wrote in a letter addressed to House and Senate leadership, at which point extraordinary measures would be used to prevent the government from breaching the debt ceiling - which has been suspended until January 1, 2025.
The department has in the past deployed what are known as "extraordinary measures" or accounting manoeuvres to keep the government operating. But once those measures run out the government risks defaulting on its debt unless politicians and the president agree to lift the limit on the US government's ability to borrow.
"I respectfully urge Congress to act to protect the full faith and credit of the United States," she said.
The news comes after US President Joe Biden signed a bill into law last week that averted a government shutdown but did not include President-elect Donald Trump's core debt demand to raise or suspend the nation's debt limit.
The bill was approved by Congress only after fierce internal debate among Republicans over how to handle Trump's demand.
"Anything else is a betrayal of our country," Trump said in a statement.
After a protracted debate in the summer of 2023 over how to fund the government, policymakers crafted the Fiscal Responsibility Act, which included suspending the nation's $US31.4 trillion borrowing authority until January 1, 2025.
Notably however, Yellen said, on January 2 the debt is projected to temporarily decrease because of a scheduled redemption of non-marketable securities held by a federal trust fund associated with Medicare payments.
As a result, "Treasury does not expect that it will be necessary to start taking extraordinary measures on January 2 to prevent the United States from defaulting on its obligations", she said.
The federal debt currently stands at roughly $US36 trillion, which ballooned across both Republican and Democratic administrations.
The spike in inflation after the COVID-19 pandemic pushed up government borrowing costs such that debt service next year will exceed spending on national security.
Republicans, who will have full control of the White House, House and Senate in the New Year, have big plans to extend Trump's 2017 tax cuts and other priorities but debate over how to pay for them.
