The last batch of newly minted pennies is expected to enter circulation in early 2026, with the government ending production of the coin in May 2025, and many retailers are feeling the heat from customers who don’t understand why $4.73 becomes $4.75.Customers don’t always understand what happens when $4.73 becomes $4.75.
President Donald Trump ordered the U.S. Treasury Department in February 2025 to stop minting pennies for circulation to cut costs, though the U.S. Mint will continue to produce numismatic versions of the penny in limited quantities for historical and collector purposes.
This will result in penny shortages affecting taxpayers making cash payments and calculating sales tax.
While the penny is still considered legal tender, shortages are expected to begin occurring in 2026, with the current circulating supply of 114 billion shrinking as older pennies drop out of use.
The change is blamed on the total production cost of the penny which has risen from 1.3 cents to 3.69 cents per penny over the past 10 years, which includes production costs for materials, facilities, and overhead. The U.S. Mint projects an immediate annual savings of $56 million in reduced material costs by stopping penny production. Given the increasing number of non-cash transactions and the very low purchasing power of a single penny, the Department of the Treasury does not believe continued production is fiscally responsible or necessary to meet the needs of commerce in the United States.
The Secretary of the Treasury has the authority under federal law (31 U.S.C. §§ 5111(a)(1) and 112(a)(6)) to mint and issue pennies in amounts necessary to meet the needs of the United States.
As pennies fall out of circulation, merchants will need to round transactions either up or down to the nearest five cents. However, most states require sales tax to be calculated on the final sale price rounded to the nearest penny. 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.
The NCSL’s Nov. 21, 2025 report entitled Elimination of the Penny: Cents-able Considerations states: “The most recommended form of rounding is 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.”
People making purchases are encouraged to use non-cash transactions, such as payments made by check, credit card, or debit card, which will be processed to the exact cent, rather than relying on businesses to apply rounding practices on cash purchases.
As is the case now, businesses can set their own refund policies. However, 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 may continue to deposit pennies at their financial institutions. Pennies will continue to be legal tender and retain their nominal value in perpetuity.