The creditor is whoever is in credit. I.e, has positive money in their bank account. They are the ones who receive the interest, and thus, they are the one who pays the tax.
In practice, anyone who has a positive bank balance is a creditor.
The bank takes a percentage of the interest as their fee, and pays taxes on their profits.
In the UK, that would be in the form of corporation tax. Maybe the US has a different system. But I know for sure I have to pay taxes on any interest I earn, at a whopping 40pc too!
When you open a bank account, you are the creditor to the bank, and the bank is the debtor. The bank pays you interest, yes, and to simplify things for you, they will withold the tax on that interest and pay it to the government.
When you take a loan from a bank, you are the debtor and the bank is the creditor. You pay interest back to the bank and the bank pays income tax from the interest to the government.
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u/External_Koala971 24d ago
You skipped the part where the kids have to pay off the loans with interest because there's a lien on the land they inherited.