Zakat: How to Calculate & Whom to Give

Answered by Sidi Salman Younas

Question: I make $100 a week, $400 a month, $5200 a year: How much do i pay for Zakat based on this income? When do i pay Zakat? Is it weekly, monthly, yearly? Where can i pay Zakat are there any institutions for paying it?

Answer: assalamu `alaykum

I pray you are well.

Zakat is due on a yearly basis when a morally-responsible Muslim possesses the minimal zakatable-amount (nisab) above and beyond his debts and immediate expenses, and a complete lunar year passes over it. In calculating one’s Zakat one calculates all his zakatable assets together. “Zakatable assets” include:

(a) Cash – whether in currency form or in the bank,
(b) Gold and Silver,
(c) Money lent out,
(d) Trade goods,
(e) Stocks, and
(f)  Agricultural produce.

After one calculates the above, one deducts:

(a) Debts, and
(b) Immediate expenses.

Some Illustrated Examples

It should be known that anyone who possesses a zakatable-minimum (nisab) the obligation to pay Zakat will commence. As soon as one possesses this amount, one’s Zakat year will start, and he will be obligated to actually pay Zakat once a whole year has passed if he still possesses an amount equal or more than the zakatable-minimum. The zakatable-minimum is equivalent to the value of 87 grams of gold.

Example 1: The zakatable-minimum is $2000. One possess $1000 of cash, $1500 of gold and silver, and $2500 in trade goods then his total zakatable assets amount to $5000 (supposing he has no money lent out, stocks, or agricultural produce). However, he also has a debt of $500 and his immediate monthly expense amounts to $500 also, which will be subtracted. Thus, his total zakatable wealth is $4000. This is above the zakatable-minimum, so the obligation to pay Zakat will commence.

If one possessed this amount on the 1st of Rabi` al-Awwal then this is when his Zakat year starts. If then, for example, he possesses $2500 on the 2nd of Rabi` al-Awwal of the next year, he will have to pay 2.5% of $2500. Thus, what is taken into consideration is the amount one possesses above the zakatable-minimum at the end of one’s Zakat year. This is the amount Zakat is due upon.

Fluctuations during the middle of the year are of no consequence, unless one’s zakatable amount reaches zero. Only the beginning and end of the year are taken into account. One has to possess a zakatable-minimal both at the beginning and at the end of one’s Zakat year for one to pay Zakat.

Example 2: The zakatable-minimum is $2000. One’s zakatable assets amount to $3000. However, one also has $500 of immediate expenses and a debt amounting to $2000. Thus, his total zakatable wealth is $500. This does not reach the zakatable-minimum and so no Zakat is due upon him. In such a case, one’s zakat year does not even commence because one never possessed a zakatable-minimum to begin with.

Example 3: The zakatable-minimum is $2000. One’s zakatable assets amount to $4000. One has immediate expenses of $500 and a debt amounting to $1000. Thus, one subtracts this, and is left with a total zakatable wealth of $2500. He possesses this amount on the 1st of Muharram. Since it is over the zakatable-minimum, his Zakat year starts on this date. On the 2nd of Muharram the following year his total zakatable wealth amounts to $1500, having decreased. Since this is not equal to or more than the zakatable-minimum no Zakat will be due upon him.

Who Does One Pay Zakat To?

Zakat can be given to any legally poor or needy Muslim individual.

A “legally poor” Muslim is defined as anyone who does not possess the zakatable-minimum himself.

An “individual” refers to an actual person who is given ownership of the wealth being given in Zakat, as opposed to an institute. This can be anyone except one’s wife, parents, and children.

One can give it to an institute if one is sure that they will disseminate the amount one is paying in Zakat to a poor or needy Muslim individual.

And Allah Knows Best
Wasalam
Salman

Checked & Approved by Faraz Rabbani