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This article is from the Paper Money Collecting FAQ, by Bruce Giese giesewpm@tiac.net with numerous contributions by others.

3.9) Is it illegal to copy U.S. paper money?

It is illegal to make *any* color copies of any kind of
small-size U.S. notes. They may only be copied in black and white
and must be larger than 150 percent of the note size, or less than
75 percent of the note size. Large size notes may be copied in
color, but the official regulations setting out the specifics
HAVE NOT BEEN ISSUED. To be on the safe side, use the 150-75
formula set up for black and white photos.

Writing "COPY" or something similar, or copying only a
portion of a note does not exempt you from the copying law. The act
of copying is the crime.

It isn't clear whether or not it's legal to scan US paper money
into a digital picture. However, one branch of the Federal Reserve
had a black and white scanned image of the new $100 note online.
Thus, it might be ok to scan it in black and white.

 

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