I think buddy was bull sh***ing you then or just mistaken himself.
Tax rates are here:
http://www.taxpolicycenter.org/taxfacts/content/pdf/individual_rates.pdf
It is a common misconception that once you go to a higher tax rate, all your income is subject to that high rate. However, that is not how it works. If your buddy was earning 130k a year, then:
After deductions, credits his AGI would be taxed as follows (assuming he is single head of household):
0 to 12,750 dollars taxed at 10%
12,750 to 48,600 dollars taxed at 15%
48,600 to 125,450 dollars taxed at 25%
125,450 to 130,000 dollars taxed at 28%
Now lets say he did earn 205k in commissions the next year, then after deductions and credits his AGI would be taxed as follows:
0 to 12,750 dollars taxed at 10%
12,750 to 48,600 dollars taxed at 15%
48,600 to 125,450 dollars taxed at 25%
125,450 to 203,150 dollars taxed at 28%
203,150 to 205,000 dollars taxed at 33%
Thus the only difference would be that 1,850 dollars was subject to the higher tax rate of 33%. Its impossible to get into a higher bracket like that and reduce your income, and that is easily demonstrable just showing how progressive taxation works. Of course in his case his AGI would have certainly been lower than 205k thus none of his income would have even been subject to the higher rate.
What I imagined happened is that he got a big commission check that was much larger than what his typical commissions checks were. Most payroll companies withhold at the highest tax rate for unusually large commissions and bonuses. Thus on that check, the withholdings quite possibly could have been at the highest rates at 39.6%. However, when he filled his taxes his rates would have been the ones I listed above and he would have refunded back the difference.
Over the last decade our household income has grown considerably and we have climbed up tax brackets as a result, this has never resulted in a reduction in our take-home pay.
eace
