Payment Standard is the number that actually determines how much rent you can charge a Section 8 tenant before they go out of pocket. The PHA sets it between 90% and 110% of HUD's published Fair Market Rent for each unit size (0 to 4 bedrooms) in their area. In high cost or low vacancy markets, the PHA may request HUD approval for exception payment standards above 110%. The payment standard caps the total gross rent (rent plus any utilities the tenant pays) that the voucher will cover. If your contract rent is at or below the payment standard, the voucher pays up to the full gap between tenant portion and contract rent. If your contract rent exceeds the payment standard, the tenant has to cover the overage themselves, and most voucher tenants cannot or will not do that, so you effectively cap out at the payment standard. Knowing the current payment standard in your market is foundational to Section 8 underwriting.
Example
FMR for a 2 bedroom in your county is $1,100. The PHA sets the payment standard at 105% of FMR. Payment standard = 1,100 x 1.05 = $1,155. That is the maximum gross rent the voucher will cover.