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in category Economics

How is zakat determined and calculated?

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Ustadh Kenny Solis explains the Importance of Zakāh and how it should be calculated quite well in his fb piece.

Zakāh 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 Zakāh…” These frequent reminders indicate how important of an obligation Zakāh is, so much so that it is even on par with the regular observance of the five prayers.

Who Must Pay Zakah

Zakāh is due when you own the minimum amount [niṣāb] for an entire lunar year, which is the value of three ounces of gold. As of April 26, 2022 the spot price per ounce of gold was $1,933, which means that the minimum amount for Zakāh 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 Zakāh on the wealth they possess. Each spouse is responsible for paying their own Zakāh, as are adult children. Also, partners in business will consider their portion of ownership in a business or property and pay Zakāh 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 [niṣāb] for Zakāh, you should mark that date. After one lunar year, you look at how much wealth you have. If you still exceed the minimum amount [niṣāb] you will pay Zakāh 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 [niṣāb] 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 Zakāh calculation. The original Zakāh date may be adjusted by paying early, before the Zakāh cycle is over. For example, Ali is supposed to pay Zakāh on June 15th since he possessed the minimum amount [niṣāb] for one lunar year. However, the month of Ramaḍān is in April and since he has a stable job he would prefer to recalibrate his Zakāh cycle to be in that month so he doesn’t forget to pay. He may pay his full Zakāh early in April and from that time on, pay it every Ramaḍān.

If you forgot when you first acquired the minimum amount [niṣāb], check your records and make a precautionary estimate of when that happened, and now be more vigilant about remembering the date.

Zakāh 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 Zakāh is due. He gives them $2,000 with the intention of paying his Zakāh early. Three months later he calculates that he needs to pay $5,000 in Zakāh. He will deduct the $2,000 he paid early and only pay $3,000 Zakāh instead.

How Much to Pay

When paying Zakāh, the final amount at the end of the Zakāh cycle is taken into consideration, regardless of when the wealth came into possession. For example, Yusuf has $30,000 at the beginning of his Zakāh cycle. Two months later he loses $29,000, leaving his savings at only $1,000. However, three weeks prior to the end of the Zakāh cycle he gains another $5000. He must pay Zakāh on $6000. Another example is that Maryam has $10,000 at the beginning of her Zakāh cycle. Three months before the end of the Zakāh cycle, she receives $90,000. She must pay Zakāh 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%
Zakāh Due: $262.50

Conclusion

It is important to remember that Zakāh is only the minimum amount that a Muslim must give. Islam teaches us to be generous and give much more charity [ṣadaqah] than just the minimum amount every year.


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