What happens when a payee certifies on Form W-9 that they are not subject to backup withholding?

When a payee certifies on Form W-9 that they are not subject to backup withholding, it indicates that they have provided accurate taxpayer information and are in compliance with IRS requirements. As a result, they will receive the full amount of the payment without any deductions for backup withholding. Backup withholding is a percentage of income that can be withheld by the payer to ensure that taxes are eventually paid to the IRS, typically applied when the payee has not provided a valid taxpayer identification number or is not in good standing with their tax obligations.

By certifying as not subject to backup withholding, the payee confirms that they have addressed any issues that may have led to backup withholding, such as outstanding tax liabilities. Consequently, they are eligible to receive payments in full without any reductions. This process allows compliant payees to avoid unnecessary deductions that would diminish their total income received.

In contrast, the other options suggest scenarios where the payee would experience deductions or additional requirements, which would not be applicable for someone who has properly certified their status on Form W-9.