The U.S. has already stopped making pennies.
Now businesses have to figure out what happens when the register says $18.97 and there are no pennies available to make exact change.
Existing pennies are not disappearing overnight. They remain legal tender, and billions are still in circulation. But as the supply gradually declines, retailers are increasingly confronting a surprisingly practical question: Can we round a cash transaction, and if so, how?
The answer depends partly on where you do business.
Congress is considering a federal framework through the Common Cents Act, while states including Washington, California, Nebraska and Kentucky have already enacted or proposed their own rules. Texas has also issued tax guidance addressing penny shortages.
For businesses that accept cash, penny rounding is becoming a point-of-sale, sales tax and accounting issue.
01Why Did the U.S. Stop Making Pennies?
It now costs considerably more than one cent to produce a penny.
The U.S. Treasury reports that the production cost reached approximately 3.69 cents per penny. Treasury estimates that ending production will save approximately $56 million annually in material costs.
The federal government has therefore stopped manufacturing new pennies for general circulation.
That does not mean pennies are worthless. Existing pennies remain legal tender and can continue circulating.
The practical issue is supply. As fewer pennies remain available at banks and cash registers, businesses may not always be able to give exact change.
That is where rounding comes in.
02What Is the Common Cents Act?
Congress has been considering legislation known as the Common Cents Act to create a federal framework for the transition away from the penny.
Versions of the legislation have passed both the House and Senate, but the legislation has not yet become federal law.
The Senate-passed version would formally stop production of one-cent coins for general circulation while keeping existing pennies as legal tender.
It would also permit businesses to round cash transactions to the nearest five cents when exact change cannot be provided.
Importantly, the Senate version does not create a blanket requirement that every business round every cash transaction. It expressly provides that businesses are not required to round.
That distinction matters because some state rules go further.
03How Does Cash Rounding Work?
The standard approach is symmetrical rounding to the nearest nickel.
For a cash amount ending in:
- 1, 2, 6 or 7 cents: round down to the nearest five cents.
- 3, 4, 8 or 9 cents: round up to the nearest five cents.
- 0 or 5 cents: no adjustment is necessary.
For example, assume the final transaction total is $25.68.
If the applicable rounding rule permits or requires rounding and the customer pays in cash, the amount collected would be $25.70.
If the customer pays by credit card or another noncash method, the transaction would generally remain $25.68.
The important point is that the rounding happens at the payment stage. Businesses generally should not start changing individual product prices to eliminate pennies.
04Sales Tax Comes Before Rounding
This is one of the most important tax issues for retailers.
Cash rounding generally should not change the sales tax calculation.
The retailer first calculates:
the selling price, discounts, taxable amount, sales tax, fees and other applicable charges.
Only after those amounts are determined does the business apply the cash-rounding adjustment, where permitted or required.
For example, assume the price plus sales tax results in a final amount of $25.68.
The business may ultimately collect $25.70 in cash because of rounding. That does not mean the business should go back and calculate sales tax using $25.70.
The two-cent difference is a cash settlement adjustment.
State tax authorities are taking this same general approach, although the exact rules differ by state.
05California Could Make Rounding Mandatory
California is one of the states taking a more formal approach.
AB 1793, the California Common Cents Act, has passed the California Legislature and was presented to Governor Gavin Newsom on August 28, 2026.
As of September 6, 2026, it should still be treated as pending legislation, not current California law.
If enacted, the law would become operative July 1, 2027.
Unlike the Senate version of the federal Common Cents Act, California's proposal would generally require merchants at physical locations in California to apply the prescribed rounding rules to covered cash payments.
Under the enrolled bill:
Cash payments ending in 1, 2, 6 or 7 cents would round down, while amounts ending in 3, 4, 8 or 9 cents would round up.
Payments made entirely by credit card, debit card, electronic payment and other specified noncash methods would not be rounded.
For mixed-payment transactions, only the portion paid in cash would be subject to rounding.
Cash refunds would generally follow the same rounding rules.
Most importantly for tax reporting, the rounding adjustment would be disregarded when calculating applicable taxes, fees and surcharges.
California businesses do not need to implement AB 1793 yet. They should, however, monitor the Governor's action and make sure their POS systems could support the rules if the bill becomes law.
06Washington Shows What an Enacted Rounding Law Can Look Like
Washington already has a cash-rounding law in effect.
Effective June 11, 2026, Washington permits businesses to round qualifying in-person cash transactions to the nearest five cents.
Washington's rule follows the familiar pattern: 1, 2, 6 and 7 round down; 3, 4, 8 and 9 round up.
But Washington also illustrates why businesses should not assume every state's rule will be identical.
Rounding in Washington is permitted rather than universally required. If the customer has the exact legal tender needed to pay the transaction total, the customer may pay the exact amount without rounding.
The Washington law also limits rounding to the cash portion of a mixed-payment transaction and makes clear that rounding does not change the sales price or the amount of tax owed or collected.
So a business operating stores in both Washington and California could eventually face two similar-looking rounding systems with an important difference: Washington permits rounding, while California's pending legislation would generally require it.
07Other States Are Taking Different Approaches
California and Washington are not alone.
Nebraska enacted penny-rounding provisions that became operative in April 2026 and allow qualifying cash transactions to be rounded to the nearest nickel.
Kentucky went further. Effective July 15, 2026, traditional nearest-nickel rounding is required for cash transactions when pennies are unavailable.
Texas has issued guidance allowing retailers facing penny shortages to round cash collections within specified limits while still requiring sales tax to be calculated on the sales price before rounding.
These differences are likely to continue as more states address penny shortages.
For a business operating in multiple states, this means there may not be one national POS setting that solves the problem.
08What Businesses Should Do Now
Businesses that accept meaningful amounts of cash should start preparing even if penny shortages have not yet caused problems at their locations.
Consider reviewing the following:
- POS configuration. Make sure rounding can be limited to eligible cash transactions and applied only after taxes, fees and discounts are calculated.
- Receipts. Ideally, the receipt should show the original total, any cash-rounding adjustment and the final cash amount paid.
- Mixed payments and refunds. Test how the system handles transactions involving both cash and cards, gift cards or other payment methods.
- Accounting. Establish a consistent way to record small rounding gains and losses without changing taxable sales.
- State rules. Before implementing a company-wide policy, confirm the requirements in every state where the business accepts cash.
Staff training matters too. A cashier should be able to explain why a $14.98 cash transaction became $15.00 while the same credit card transaction remained $14.98.
09The Penny Is Leaving. The Rules Are Still Arriving.
Ending penny production sounds like a minor change.
For businesses handling thousands or millions of retail transactions, it is not.
The penny may be disappearing from the cash drawer, but prices, sales taxes, refunds, accounting systems and payment processors still operate to the cent.
The Common Cents Act could eventually create a broader federal framework. In the meantime, states are moving at different speeds and adopting different rules.
Businesses do not need to redesign every register today. But they should know whether their POS system can handle cash rounding, make sure tax is calculated before any rounding adjustment, and watch the rules in the states where they operate.
The penny's days may be numbered. The compliance questions are just beginning.
This article is general information, not tax or legal advice. The rules are fact-specific, change over time, and depend on details unique to your company. Talk to us about how they apply to your situation.