The U.S. Department of the Treasury on Dec. 23 posted a Penny Production Cessation FAQs on its website offering guidance to convenience stores and other retailers regarding the penny no longer being produced.
The Federal Reserve will continue to recirculate the approximately 114 billion pennies currently in existence for as long as possible, according to the Treasury’s FAQs, noting, “How long existing pennies remain in circulation depends largely on consumer behavior.”
As pennies fall out of circulation, merchants will need to round transactions up or down to the nearest 5 cents, the Treasury said.
“However, most states require sales tax to be calculated on the final sale price rounded to the nearest penny,” the Treasury said. “How states and localities will ultimately amend their sales tax laws is the right and responsibility of those jurisdictions. Recent guidance from the National Council of State Legislators gives some indication how states may adapt.”
This guidance includes “symmetrical rounding whereby if 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. 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. Rounding rules would not apply to payments made via electronic methods, checks, gift cards, or other non-cash instruments.”
The Treasury said retailers should continue accepting pennies and giving penny change for cash transactions while the coin remains in circulation. When penny change is not available, businesses may round the final amount of a cash transaction to the nearest 5-cent increment, “recognizing that states will approach this issue differently based on unique considerations. The penny will remain legal tender, meaning it retains its status as an acceptable form of payment.”
The Treasury also recommends that non-cash transactions, such as payments made by check, credit card or debit card, continue being priced and processed to the exact cent.
Businesses should apply rounding practices in a fair, consistent, and transparent manner, the Treasury said, adding that payments made with foreign currencies, government checks, gift cards or split payments “can be settled to the exact amount without the need for rounding adjustments.”
The Treasury added, “For cash transactions, final transaction prices will be rounded down just as often as they will be rounded up, so there should be no overall effect on consumer prices.”
Whether to update cash registers for rounding is a decision to be made by each individual business.
“As pennies fall out of circulation and states adapt their laws and policies accordingly, we recommend rounding for cash payments should take place only after all duties, fees and taxes have been calculated,” the Treasury said. “Businesses may choose to update their point-of-sale systems to automatically apply rounding for cash transactions. Doing so can enhance transparency and improve the customer experience by clearly displaying the rounding adjustment on receipts.”
To support a smooth transition, the Treasury Department said it is collaborating with point-of-sale (POS) system providers to ensure their systems are properly equipped to handle rounding and accurately calculate sales taxes.
The FAQs also addressed refunds, noting that “if a refund is paid in cash and pennies are not used, businesses should round the final amount in a fair and transparent manner.”
Businesses can continue to deposit pennies at their financial institutions, the Treasury said, adding, “Pennies will continue to be legal tender and retain their nominal value in perpetuity.”
The recommendations in the FAQs are “non-binding guidance,” the Treasury said. “All must comply with otherwise applicable restrictions.” For more information on how the phase-out of the penny might affect sales taxes and income taxes, retailers can consult their state’s tax authority for specific guidelines and updates, the Treasury Department said.
The Secretary of the Treasury suspended production of the 1-cent coin, with the the final penny pressed Nov. 12., after determining it was no longer needed—and becoming increasingly expensive to make. The cost to produce the penny has increased from 1.42 cents to 3.69 cents per penny, according to the United States Mint.
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