Under the backup withholding rules, the business or bank must withhold on a payment if:
1. You have not given the payer your taxpayer identification number in the required manner,
2. The IRS has notified the payer that the taxpayer identification number you provided is incorrect.
3. The IRS has notified the payer to start withholding on interest and dividends because you had not reported all of your interest or dividend income in prior years; or
4. You have not certified that you were not subject to backup withholding on interest and dividends.
Yes, you should let them know that you are not subject to backup withholding or they will have to take it out of your payments. You would know if the IRS is after you for not paying what you should have before and notified you and others (like your bank) to withhold involuntarily. [ I am not a lawyer and accept no responsibility for this comment but it comes straight from the
IRS.]