The Federal Reserve’s decision to limit penny distribution after the U.S. Mint stopped producing the coin in November had swift and uneven consequences: Regional penny shortages occurred along with a patchwork of rounding policies implemented by some retailers. 

On Jan. 14, the Fed reversed course, reopening coin distribution channels to penny deposits from banks and credit unions. The move is expected to gradually ease shortages and give policymakers and businesses more time to grapple with the broader implications of reduced circulation of the penny, which remains legal tender in the U.S.

The disruption underscored the need for detailed guidance on rounding practices and their tax consequences, said Adam Gregg, president and CEO of the Iowa Bankers Association.

“The decision by the Fed to reopen terminals and get the penny circulating more evenly again is going to buy everybody time to think through all the implications of what that wind down [of the penny] should look like,” Gregg said. “The previous policy was forcing that question sooner than anybody anticipated.”

Why penny production ended

In February 2025, President Donald Trump, in pursuit of cutting costs, directed the U.S. Treasury to stop producing new pennies.

In its 2024 annual report, the U.S. Mint reported that the cost to make and distribute a single penny was 3.69 cents, an amount that jumped 20.2% between 2023 and 2024. The federal government lost $85.3 million in 2024 from minting more than 3 billion new pennies, the Mint reported.

“It is really hard to argue for the need to keep the penny when you’re losing money,” Gregg said. “It was a decision that was proper and had to be made.”

Other countries have discontinued the use of small coins. In 1992, Australia eliminated its 1-cent and 2-cent coins. New Zealand stopped making 1-cent and 2-cent coins in 1990 and 5-cent coins in 2006.

Canada stopped making its penny in May 2012; it stopped distribution of the coin to financial institutions in February 2013. Also in February 2013, the country implemented clear guidelines for rounding cash transactions to the nearest 5 cents, according to Avalara, a cloud-based firm that provides tax compliance software to companies. Transactions ending in 1, 2, 6 or 7 are rounded down to the nearest 0 or 5; transactions ending in 3, 4, 8 or 9 are rounded up. 

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No consistent rounding rules in US

Matters regarding currency fall under the jurisdiction of the federal government but because of sales and other types of taxes, state and local entities also can implement policies. At least eight states – California, Colorado, Connecticut, Florida, Illinois, Massachusetts, New Jersey and Texas – have consumer protection laws that prompt retailers to implement rounding policies, often favoring rounding down to avoid consumer complaints.

New York’s state assembly is considering legislation that would mirror the Canadian standard.

Iowa does not have any rules or laws for rounding cash transactions. Guidance from the Iowa Department of Revenue allows businesses to adopt their own rounding policies as long as the sales tax is based on the taxable sales price.

“It’s important to have some rules of the road,” said Carolyn Reddick, an associate professor of practice at the University of Iowa’s Tippie College of Business. “One business might decide to always round up to five in their cash transactions, which would increase their earnings, very immaterially, over time. Another business might decide to always round down. … I think having the same rule that everyone follows will remove any potential inconsistency.”

The federal government has not issued formal guidance on rounding although the treasury department has said that retailers will “need to round transactions either up or down to the nearest 5 cents.” That guidance was included in a FAQ about the end of penny production.

Federal legislation known as the Common Cents Act was introduced in Congress but has not been voted on by either the full Senate or House. The bill includes rules on rounding, similar to what is being considered by New York’s state assembly.

The proposed legislation as well as guidance from other agencies doesn’t address how to report additional revenue when rounding up, said Austin Strawhacker, state director of America’s Small Business Development Center Iowa at Iowa State University.

“How do you report that additional 2 cents on your income statements and ultimately, your taxes, at the end of the year?” Strawhacker said. “That’s where we would encourage someone to gather insight from” a certified public accountant.

Reaction from retailers, banks

Without formal guidance on the matter, retailers and others have implemented their own rounding policies.

In October, before penny production ended, Kwik Star convenience stores adopted a policy to round all cash transactions down to the nearest nickel. The move was prompted because banks in some areas served by the La Crosse, Wis.-based convenience store company ran out of pennies, spokesperson John McHugh said.  

“We decided as a company to always round down in favor of the guest,” McHugh said. “We have 900 stores and that’s going to cost us a lot of money this year. We’re talking millions of dollars because those little pennies add up. But from our perspective, we did not want to aggravate our customers.”

Ankeny-based Casey’s General Stores has adopted a similar policy, a spokesperson wrote in an email. “Due to the national penny shortage, Casey’s stores may be unable to provide exact change. We appreciate our guests’ understanding, and when necessary, cash transactions will be rounded down to the nearest five cents in favor of our guests.” 

Financial institutions have also had to determine how to handle rounding-related issues when pennies are not available. Iowa City-based GreenState Credit Union, on its website in December, announced that pennies would be accepted from members for deposit but not withdrawals. In addition, when members cash checks or redeem coins, cash back totals will be rounded down to the nearest 0 or 5 cents and the remaining pennies deposited into the members’ savings account. For example, if a check totaling $27.43 was cashed, the member would receive $27.40 in cash and 3 cents would be deposited into savings.

For nonmembers who cash checks or redeem coins at GreenState, transaction fees are rounded to the nearest 5 cents.

Bankers Trust Co., headquartered in Des Moines, has decided to round up when the time comes that pennies are no longer in circulation, said Stacy Van Loon, a Bankers Trust senior vice president and consumer services senior manager. So far, the financial institution has not had any difficulties obtaining pennies, she said.

“Every retail industry or place is going to have a different way of doing things,” Van Loon said. “We thought about what we could do to turn a negative into a positive so we’re just going to round up when we get into that situation” with a non-Bankers Trust customer.

Few Bankers Trust’s transactions are cash and fewer still are by non-customers. The impact of rounding up cash transactions by noncustomers will be minimal to Bankers Trust’s bottom line, a spokesperson said.

Will the nickel disappear next?

Consumers in the U.S. continue to rely on cash even as the use of credit and debit cards has grown and cellphones are increasingly used to make payments, according to a 2025 report by the Federal Reserve. Cash accounts for between 14% and 16% of transactions, making it the third most-used payment method behind credit and debit cards.

That continued reliance on cash means coins remain part of everyday transactions. As pennies become increasingly scarce, demand for nickels is likely to rise, according to the Federal Reserve Bank of Richmond’s July Economic Brief.

Nickels are also costly to produce.

In 2024, it cost 13.8 cents to make a nickel, resulting in a loss of $17.7 million from minting 202 million new nickels. If increased demand prompts more nickels to be made, the seigniorage loss will also increase, the Federal Reserve Bank of Richmond wrote.

“I wouldn’t be surprised if in 10 years we are having the same conversation about the nickel that we’re having about the penny,” Gregg said.

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The history of the penny in the US

By Kathy A. Bolten

For 232 years, the United States produced pennies, the majority of which were made of copper.

Production of pennies ended on Nov. 12, 2025, after federal officials decided it cost too much to make the 1-cent piece. In the past decade, the cost to make one penny more than doubled, from 1.3 cents to 3.69 cents, according to the U.S. Department of Treasury.

The U.S. Mint has estimated an annual cost savings of $56 million by ending penny production.

Penny production began and ended in Philadelphia, the location of one of four active coin producing mints in the United States.

In 1792, Congress passed the Coinage Act, establishing the first U.S. mint in Philadelphia. Pennies were among the first coins produced at the mint with 11,178 copper 1-cent coins released in March 1793, according to the U.S. Mint.

The 1-cent coins, which were larger than today’s quarter, were not a hit with U.S. citizens. Lady Liberty was shown with her hair flowing behind her; the expression on her face was described by some as “in a fright,” according to the Mint. The back of the coin featured a chain with 15 links. Some thought the image symbolized slavery rather than unity of the states.

Within a couple of months, the chain was replaced with a wreath and a new Lady Liberty was designed.

Pennies with an image of Abraham Lincoln were introduced in 1909 in commemoration of the former president’s 100th birthday. The back of the coin featured two stalks of wheat, a design that was in place until 1958 when the reverse side of the coin was changed to the Lincoln Memorial.

Over the years, there have been at least 14 designs of the U.S. penny, according to Finest Known, an online retailer of rare U.S. coins and other historic rarities.

The U.S. Mint estimates that there are 114 billion pennies – more than 628 million pounds worth – in circulation.

Other penny facts

• It’s difficult to determine how many 1-cent coins have been produced in the U.S. since 1793. However, the U.S. Mint estimates that 559.16 billion pennies were minted between 1880 and November 2025.
• In 1982, 16.72 billion pennies were produced, the most in any year between 1880 and 2025.
• In 1922, 7.1 million pennies were produced, the least amount between 1880 and 2025.
• In fiscal 2024, 57% of the 5.61 billion U.S. coins in circulation were pennies.
• A penny’s lifespan is about 30 years.
• The Lincoln penny, minted in 1909, was the first U.S. 1-cent coin to include the words “In God We Trust.”
• In 1943, the U.S. Mint in Philadelphia used steel to make pennies so that copper could be used to make ammunition, electrical wiring for radios and generators, and tanks and airplanes during World War II.
• Prior to 1982, pennies were made of 95% copper and 5% zinc. The increasing cost of copper prompted the Mint to change the coin’s composition to 97.5% zinc and 2.5% copper, which is what coats the penny.