Why the end of pennies could trigger a small "rounding tax"

• Getting rid of the penny could disproportionately affect low-income and older Americans, who are more likely to use cash.

The big picture: New Fed data shows consumers could potentially lose $6 million annually in the rounding tax from the end of the penny.

• The Mint reported losing $85.3 million on the nearly 3.2 billion pennies it produced in the 2024 fiscal year, because it cost 3.69 cents to produce each penny.
• The Treasury said stopping production will save the government $56 million a year in reduced material costs.
• The move is expected to change how retailers price items and end 99-cent pricing.

Rounding tax from cutting pennies

How it works: Cash transactions will likely be rounded to the nearest nickel with the penny's removal, per the Richmond Fed report.

• "If the final digit of a purchase ends in 3, 4, 8 or 9 cents, the total will be rounded up," the report explains, "if it ends in 1, 2, 6 or 7 cents, it will be rounded down."
• Cashless transactions will still be priced at exact change.

Between the lines: Cash accounts for 16% of all payments, according to the Federal Reserve's 2024 Diary of Consumer Payment Choice.

• It's the third most-used payment type after credit and debit cards.
• Consumers younger than age 55 used cash for 12% of payments in 2023, compared to 22% for those age 55 and older.

Eliminating nickel would come with higher costs

The intrigue: The nickel is even more expensive to make — 13.78 cents for each 5-cent coin, the Mint's 2024 annual report shows.

• The new report says eliminating the nickel in addition to the penny could result in significantly higher rounding costs: up to $56 million per year for consumers.
• The Treasury doesn't lose money making dimes and quarters. It costs 5.76 cents to make the 10-cent dime and 14.68 cents to make the 25-cent quarter.

When will penny production stop?

Flashback: President Trump directed the Treasury to stop producing new pennies back in February. In May, the U.S. Treasury confirmed the U.S. Mint will stop making the coins early next year.

• The Mint will stop making pennies after it runs out of the blank templates used to make the one-cent coins, the Treasury Department told Axios.
• The final order of blanks was placed in May, a Treasury spokesperson said.

Canada discontinued production of its penny in 2012 and Australia and New Zealand stopped producing their lowest-denomination coins decades ago.

Pennies will still be legal tender

Follow the money: Pennies will remain U.S. tender after their production ends and consumers will be able to continue using them.

• The Federal Reserve report said availability will gradually decline as existing coins fall out of circulation.
• Electronic payments are expected to become more widespread, leading to a likely decline in cash transactions and need for rounding, the report said.