The magazine calls Obama the "architect of the new America."
Time says the runner up as Person of the Year was Malala Yousafzai, an Pakistani teen that survived an assassination attempt after she spoke out for women's rights to education.
Last year's Person of the Year was the protester after the Occupy movement across the country. In 2010, it was FACE founder Mark Zuckerberg.
The selection was announced Wednesday on NBC's "Today" show. On the 2012 shortlist was also Egyptian president Mohamed Morsi and Bill and Hillary Clinton.
Obama also received the honor in 2008, when he was President-elect.
Time's "Person of the Year" is the person or thing that has most influenced the culture and the news during the past year for good or for ill.
Other previous winners have included Federal Reserve Chairman Ben Bernanke, Bono and President George W. Bush.
The Associated Press contributed to this report.