How is zakat determined and calculated?

In a Nutshell: You simply pay 2.5% on surplus assets (business stock, cash holdings etc) less liabilities (debt owed) held over the period of a year. Introduction Zakah has been mentioned in the Qur’an eighty-two times. It has been mentioned alongside the performance of prayer in thirty-two instances, with wording such as “establish prayer and pay Zakah…” These frequent reminders indicate how important of an obligation Zakah is, so much so that it is even on par with the regular observance of the five prayers. Who Must Pay Zakah Zakah is due when you own the minimum amount [nisab] for an entire lunar year, which is the value of three ounces of gold. As of 26 April 2022 the spot price per ounce of gold was $1,933, which means that the minimum amount for Zakah this year is $5,799. Note that this amount fluctuates with the changing price of gold. If you own less than this amount, even if it covers your expenses, you are generally not considered to be well off. If you had more than the minimum amount of money in cash, liquid investments, and sellable business goods one [lunar] year ago, and still have more than the new minimum amount, then you must pay 2.5% of your entire wealth. Every individual is responsible for paying Zakah on the wealth they possess. Each spouse is responsible for paying their own Zakah, as are adult children. Also, partners in business will consider their portion of ownership in a business or property and pay Zakah individually. For example, if ten people own an equal share in a car worth $30,000 that they plan to sell, then each of them owns only $3000. When to Pay When you first acquire enough wealth that meets the minimum amount [nisab] for Zakah, you should mark that date. After one lunar year, you look at how much wealth you have. If you still exceed the minimum amount [nisab] you will pay Zakah on 2.5% of your current wealth. Since a person’s wealth fluctuates throughout the year, the way this is calculated is to ensure that the minimum amount [nisab] is owned at the beginning and end of the Zakah cycle [ḥawl], similar to a fiscal year where only the beginning and end values matter. To make calculations easier, you may specify a specific date that is easy to remember [a day in Ramadan is usually chosen because it is easy to remember, not because it has more virtue] to mark the date for Zakah calculation. The original Zakah date may be adjusted by paying early, before the Zakah cycle is over. For example, Ali is supposed to pay Zakah on June 15th since he possessed the minimum amount [nisab] for one lunar year. However, the month of Ramaḍan is in April and since he has a stable job he would prefer to recalibrate his Zakah cycle to be in that month so he doesn’t forget to pay. He may pay his full Zakah early in April and from that time on, pay it every Ramaḍan. If you forgot when you first acquired the minimum amount [nisab], check your records and make a precautionary estimate of when that happened, and now be more vigilant about remembering the date. Zakah must be paid out as soon as it is due and you will be sinful for delaying it. However, it may be paid in advance. For example, Umar finds a family in need three months before his Zakah is due. He gives them $2,000 with the intention of paying his Zakah early. Three months later he calculates that he needs to pay $5,000 in Zakah. He will deduct the $2,000 he paid early and only pay $3,000 Zakah instead. How Much to Pay When paying Zakah, the final amount at the end of the Zakah cycle is taken into consideration, regardless of when the wealth came into possession. For example, Yusuf has $30,000 at the beginning of his Zakah cycle. Two months later he loses $29,000, leaving his savings at only $1,000. However, three weeks prior to the end of the Zakah cycle he gains another $5000. He must pay Zakah on $6000. Another example is that Maryam has $10,000 at the beginning of her Zakah cycle. Three months before the end of the Zakah cycle, she receives $90,000. She must pay Zakah on $100,000. Calculating Zakah is quite simple: • Add up your Zakatable assets • Subtract your current liabilities (not long-term debts) • Determine whether the remainder meets the minimum amount of 3 oz of gold value • If so, pay 2.5% on the entire amount Here is a sample calculation of a person’s assets: Assets Cash: $500 Under Mattress; $100 in Wallet Checking Account: $10,000 Market Value of Stocks: $5,000 Loans Given Out (easily collectible): $2,000 Liabilities Debts I Owe (due now or current installment): $5,000 Past-Due Rent: $2,000 Unpaid Electricity Bill: $100 Due Subtotal: $10,500 x 2.5% Zakah Due: $262.50 Conclusion It is important to remember that Zakah is only the minimum amount that a Muslim must give. Islam teaches us to be generous and give much more charity [sadaqah] than just the minimum amount every year.