In 2024, the US Mint incurred a gross cost of $117 million to produce 3,172 million pennies, resulting in an estimated loss of $85.3 million. Due to the economic inefficiency of minting a coin that costs significantly more to produce than its face value, the US government is actively phasing out the penny. In this article, we examine the potential changes restaurants will face and provide probable solutions.
The Penny’s Last Supper
In February 2025, the US government announced its intention to phase out penny production by early 2026. While economically pragmatic, this change will primarily affect restaurants in the following ways: cash transaction rounding rules and POS system adjustments.
Cash Isn’t Going Anywhere (Yet)
Although it’s become less common to find truly cash-only foodservice establishments, a segment of consumers still rely on cash. In general, however, cash payments have been steadily declining across all sectors due to the convenience of digital payment technologies and the ubiquity of credit card usage. Despite the decline, accepting cash remains important for restaurants: an estimated 5.6 million unbanked households in the US rely on it.
To protect the financial inclusion of these millions of consumers, some states have passed laws that prevent businesses from refusing cash payments, including Massachusetts, Arizona, South Carolina, Colorado, West Virginia, Connecticut, Delaware, and Tennessee, among others. Other states have cities with cashless business bans, such as San Francisco, Berkeley, Philadelphia, West Hollywood, Washington, D.C., and Detroit.
The penny’s departure may accelerate the ongoing trend towards cashless payments. Cash, however, will likely persist as a payment option for the foreseeable future.
Rounding Out the Details
While electronic payments and credit card transactions will remain unaffected, restaurant operators will be required to round cash transactions to the nearest five cents.
Luckily, the US isn’t the first country to eliminate low-denomination coins, which gives lawmakers examples of how to successfully implement this change. Canada, for instance, phased out its penny in 2012. Now, the most popular rounding methodologies under consideration mirror Canada’s symmetric rules:
- Rounding Up: Cash totals ending in 1, 2, 6, or 7 cents will typically be rounded up to the nearest nickel.
- Rounding Down: Conversely, totals ending in 3, 4, 8, or 9 cents will be rounded down to the nearest nickel.
A key takeaway from Canada’s experience is the importance of a clear and unified national policy. As economist Jay Zagorsky noted, the decision to halt penny minting addresses supply but not demand and requires a cohesive policy from Congress. Canada’s successful transition was facilitated by a well-thought-out plan and clear rounding guidance from government officials. If the US chooses to take a divided approach, the transition will likely become fragmented and confusing.
Navigating Sales Tax Complications
One of the trickier aspects of rounding cash transactions is figuring out how this approach will affect the amount of sales tax remitted to the state.
For example, if a transaction’s calculated tax is $0.52 but the cash payment is rounded down to reflect $0.50, should the restaurant remit $0.52 or $0.50 to the tax authorities? Some suggest businesses should still remit the calculated tax amount (to the penny) regardless of the rounded cash payment, while others acknowledge that minor audit discrepancies may be unavoidable.
Presently, US tax administrators are still grappling with the question of sales tax. The US Treasury has indicated that state and local governments will need to provide guidance on how to collect and remit sales tax once the penny is phased out, meaning there might not be a uniform federal rule, despite warnings. A lack of uniform federal rules will create logistical speed bumps for chain restaurants especially, as they’ll need to pay close attention to the specific regulations in each jurisdiction as they emerge.
The POS Tech Challenge
Another significant operational adjustment for restaurants will be updating their Point-of-Sale (POS) systems to automatically apply the new rounding rules for cash payments. The current trend towards all-in-one POS systems, which integrate restaurant functions like order processing, inventory management, staff scheduling, and sales reporting, is likely to accelerate to seamlessly handle complex rounding logic and reporting requirements.
However, POS system overhauls are not minor software patches; they present a financial challenge, as well as a major IT project for many establishments. The initial investment in POS system updates, staff training, and potential accounting system overhauls represents a significant cost for restaurants.
Independent and small foodservice businesses will likely be hit the hardest. They may lack dedicated IT departments or the sufficient capital necessary for immediate, extensive upgrades. Therefore, we recommend that restaurants consult with their POS providers early to ascertain their readiness and planned updates for this transition.
A Penny for Your Thoughts?
Ultimately, the long-term impact of this change is expected to be a more streamlined and efficient cash payment environment. However, before we reap the rewards, restaurant operators will have to consider POS system updates, rounding strategies, new tax rules, and the staff training required to implement these new standards and procedures.
Operators, how are you preparing for the practical implications of penny-less transactions? Let us know in the comment section!
