Life after the penny: rounding, regulation, retail risk

The federal government's phasing out of pennies is proving problematic for America's retailers but could provide added impetus for them to embrace card payments. Pennies may be small change, but they add up, as anyone in merchant services can attest. (At 2 percent, for example, the processing fee collected on a $2 purchase is 2 cents. Multiply that by hundreds or thousands and you're getting into real money.)

Pennies are also expensive to produce. According to the U.S. Department of the Treasury, it costs 3.7 cents to mint a penny. That's why the U.S. Mint, the Treasury agency that churns out coins, ceased production of pennies in November.

Circulation continues

The end of production does not mean the end of pennies. The Federal Reserve "will continue to recirculate the 114 billion pennies currently in existence for as long as possible," the Treasury Department stated in a recent FAQ. "How long existing pennies remain in circulation depends largely on consumer behavior."

As the supply of pennies diminishes, POS systems providers "are encouraged to collaborate closely with retailers to implement rounding functionality for cash transactions, rounding to the nearest five cents," the Treasury Department added.

Square is already on the case. On Dec. 11, 2025, it announced a cash-rounding pilot, something it said it had done in Australia and Canada after those countries did away with pennies over a decade ago. The pilot involves rounding transactions to the nearest 5-cents. Square said 19 percent of transactions it handles are made using cash.

Penniless stores

Even before the last penny was minted, many retailers were grappling with a shortage of the coins. When the Retail Industry Leaders Association surveyed the 25 largest retailers, in November, nearly a quarter reported that better than 1,000 of their store locations had no pennies in their cash drawers. Two thirds said they were rounding transactions to the benefit of consumers, a practice RILA said was costing businesses millions of dollars.

In its FAQ document, posted on Dec. 23, the Treasury Department said rounding is the way to go. "Businesses should apply rounding practices in a fair, consistent and transparent manner," it stated, advising businesses to round cash payments "only after all duties, fees and taxes have been collected."

The Department conceded rounding could complicate state sales tax collections. To provide guidance, it quoted a document published by the National Council of State Legislators.

"The most recommended form of rounding is symmetrical rounding whereby the final digit of the total transaction amount (including taxes) is 1, 2, 6 or 7 cents the amount is rounded down to the nearest multiple of five," the NCSL advised. "If the final digit is 3, 4, 8 or 9 cents, the amount is rounded up. Transactions totaling exactly $0.01 or $0.02 might be rounded up to $0.05."

Calls for 'Common Cents'

Organizations representing retailers asserted that the NCSL guidance isn't enough. Ditto for Treasury's advice. "While the issuance of the FAQ is a welcome step, it does not remove or address the legal risks for retailers when they round the amounts of cash transactions, or change to compensate for the lack of pennies," the National Association of Convenience Stores said of the document. "Legislation is still needed in order to provide retailers with a legal safe harbor when they round these amounts as described in the FAQs."

"Only Congress can provide the clarity and directives necessary to ensure a smooth transition for both retailers and consumers," the RILA asserted in a statement. And it needs to move "expeditiously," the association added.

"Without legislative action, the lack of guidance cost the nation's largest retailers millions of dollars," said Austen Jensen, the RILA's senior executive vice president for public affairs. "Congress should act quickly to provide the fix needed for retailers and ensure that cash tendered payments aren't disrupted by the end of the penny."

Bipartisan legislation pending in the House and Senate, the Common Cents Act, would achieve what NACS and RILA are looking for. It essentially would codify the Treasury Department's rounding recommendations.

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