The five most important and essential acts of worship in Islam are simply known as the “pillars of Islam.”  They are the “shahadah” (the testimony that no one deserves worship except Allah and Muhammad is the Messenger of Allah), the five daily prayers, zakah, fasting, and the hajj pilgrimage.  A Muslim has to first and foremost focus on learning and practicing these pillars before focusing on other aspects of Islam.

The word ‘zakah’ is usually translated as ‘poor due’ or ‘alms tax.’  Actually, no single word can translate zakah properly. 

Before the word zakah is explained, it is best understood with another word, “sadaqah.”

Zakah and sadaqah are different.  Zakah is obligatory charity and is required, whereas sadaqah is voluntary charity and is a recommended act that brings extra reward.  Moreover, zakah is the third pillar of Islam.  Not paying zakah out of negligence is a sin, whereas a person is generally not sinful for not paying voluntary charity.  That is why it is called “voluntary” charity! Zakah is calculated precisely and can only be given to specific recipients, whereas sadaqah is not bound by such regulations.  Zakah has to be given yearly, whereas sadaqah can be given only once or as frequently as one likes.

Spirituality of Zakah


Zakah is a beautiful act of worship that is intimately tied to purification.  As a matter of fact, spending one’s wealth in zakah purifies the heart from the love of material wealth.  A person who offers the gift of his wealth affirms the truth that to him nothing is dearer than the love of Allah and he is prepared to sacrifice even his wealth to please Allah.  The Prophet Muhammad said,

‘Whoever pays the zakah on his wealth will have its evil removed from him.’[1]

Exact Definition of Zakah


In Islamic Law (Shariah), words are clearly defined.  Zakah is no exception.  Shariah defines zakah to be specific portion of one’s wealth that one must give yearly to a specific group of recipients that are mentioned in the Quran.

Importance of Zakah & the Punishment for Not Paying It


Zakah represents the compassion of Islam towards the poor and needy.  Zakah is not a tax, but it is an act of worship for which one receives reward from Allah.  Not paying the zakah is a sin.  Denying its obligation is an act of disbelief.

The Quran tells us about the fate of those who refuse to pay zakah.  It says,

“…And those who hoard up gold and silver and do not spend it in the way of Allah, warn them of a painful suffering (in the life to come).  On that day when (the hoarded wealth) will be heated in the fire of Hell and with it their foreheads, their sides, and their backs will be branded (and it will be said to them), ‘This is the treasure which you hoarded for yourselves, so taste what you used to hoard.’” (Quran 9:34-35)

What is Nisaab?


Zakah is not to be paid unless the wealth reaches a minimum level called “nisaab.” Think of nisaab as a scale to help you determine if you are required to pay zakah.  Different forms of wealth have different nisaab:

Silver                     595gm                   

Gold                       85gm, 3 US oz, or 2.74 troy oz of pure gold

Cash & Savings      Equal to the value of 85 gm of gold or 595 gm of silver, whichever works out to be less. 

Zakah on above items is 2.5% of their value.  If the nisaab is met in any one form of wealth, zakah becomes applicable only on that particular form of wealth and is calculated on the total (nisaab plus excess) of that.

The prices of gold and silver vary everyday in international markets.  For example, on August 15, 2012 the price of gold was approximately $51.54/gm and for silver was $0.89/gm, hence the nisaab for gold was approximately $4380.9 ($51.54 x 85 grams) and the nisaab for silver was approximately $529.55 ($0.89 x 595 grams).  Gold and silver prices can be obtained from www.goldprice.org

When is Zakah Due?


Many Islamic rules and regulations depend on the Islamic lunar year.  Zakah is one of them.  If you have had wealth more than the nisaab for one (lunar) year, then you just pay the zakah.  Though not required, but most people calculate their zakah Ramadan to Ramadan.  You can fix to calculate and pay your zakah every 1st or 15th of Ramadan. 

Example: Say you have $2000/- and 800 grams of gold for one lunar year.  Your zakah calculates to be $50 and 2.5% of 800 grams, that is 20 grams or its equivalent cash.

Who Must Pay Zakah?


Zakah is required from Muslims only whether they be adult or minor, male or female, sane or insane.  Legal guardians must pay zakah on behalf of those who can’t.  This is an important issue for children with special needs who have their own funds or have a trust created for them and the money amassed in those accounts reaches nisaab.

Zakah is also due on merchandise, livestock and agricultural produce like grains, fruits, and vegetables.  It is important for a trader or a farmer to know about the zakah regulations pertaining to him, but for now we will not discuss it in these lessons.

There is no zakah on things used for satisfying the basic necessities.  Basic necessities are food, shelter, clothes, household goods, utensils, furniture, etc.

Zakah on Stocks, Shares, & 401K


Zakah is calculated at a standard rate of 2.5% of total portfolio value at the zakah due date because they are bought with expectation of profit, and readily traded for money.

Short-term traders should estimate stock values on an established annual zakah due date, regardless of stock purchase dates or value fluctuations, and pay 2.5% of total portfolio value.

It seems best to consider all accounts - 401(k), Keogh, IRA, SEP-IRA, Roth IRA, etc.  - as zakatable at the rate of 2.5% annually.  Usually not all the money is accessible to the investor for withdrawal, up to 50% normally being allowed.  Therefore, the following formula is suggested by some scholars:

Withdrawal Amount - Prescribed Penalty - Prescribed Tax = Zakatable Amount

Who Can Receive Zakah?


The Quran tells us who is entitled to receive zakah.  The eight categories are found in the Quran in Chapter at-Tawbah, 9:60:

1.  The Poor


Poor people who do not have sufficient money to meet their needs are qualified to receive zakah.  It does not mean they are penniless, but cannot make their ends meet, yet they do not ask others for help out of modesty and a sense of self-respect.

2.  The Destitute


These are people who are so poor that they have nothing to meet their needs.  Obviously, they are in worse condition than the first category.

3.  Zakah Administrators


People responsible for collecting and distributing zakah could be paid for their work from zakah funds.  They can receive wages whether they are poor or not.

4.  Reconcile Hearts


People who have recently accepted Islam can be given zakah.  People can also be given money from zakah to seek their support or to prevent their opposition.

5.  Freeing Slaves


In the past, zakah money was also used to buy slaves their freedom.  The Quran has legislated it to be one of the legitimate ways to spend the money from zakah.  It is a clear expression of the compassion of Islam towards treatment of slaves when they existed.  Islam raised freeing slaves to an act of worship pleasing to God.  No other religion has ever done that as far as this author is aware of.

6.  Paying Debts


People who are overburdened with debt and do not have a way to pay on their own can also receive zakah funds.  The debt can be due to medical reasons, marriage, or other lawful expenses.

7.  Cause of Allah


Wealth can also be spent in the cause of Allah.  The traditional understanding held by the classical scholars of Islam is that this category is reserved for jihad or a legitimate war.  Later scholars have included efforts for the spread and ideological defense of Islam in this category as well.

8.  Travelers


People used to get stranded in the past while traveling with no access to their funds back home.  It happens sometimes today as well.  In such situations, those travelers may be given money from zakah.  The condition is that their journey should not be in disobedience of Allah, but for an acceptable cause like seeking knowledge, looking for a job, or doing business.

Who Can Not Receive Zakah?


A wealthy person cannot give zakah to his or her parents because they are the child’s responsibility.  Also, a husband cannot give zakah to his wife as she is his financial responsibility.  Furthermore, a non-Muslim cannot be given zakah according to the majority of scholars.  Poor non-Muslims can be helped with sadaqah or voluntary charity.

Practical Tips on Giving Zakah


1.    You can give money to a poor and needy Muslims directly if you know them.

2.    Your local Islamic center most likely collects zakah and distributes it to the needy of the local community or works with a charitable organization.  Therefore, you can always ask the local mosque if they accept zakah.  You might even find boxes labeled “zakah” in the mosque in which you can simply drop your check or cash for zakah. 

3.    Furthermore, you can search online and find numerous Islamic charitable organization that collect zakah to sponsor orphans or distribute food or medicine in disaster-struck areas. 

The following are just some of the organizations you can give your zakah to:

www.zakat.org

www.islamic-relief.com

www.hhrd.org

Miscellaneous Issues


Zakah is to be paid on gold and silver jewelry.  The zakah on the gold will be calculated according to the gold content in the jewelry (i.e.  karats) and its value in the market.  Hence when calculating the value of your gold, you must consult a jeweler for the correct value (based on the content and weight).  Any stones in the jewelry are not subject to zakah.

You must have the intention to pay zakah when you give it out.  In other words, you cannot give money in donation, then later think to yourself, ‘well, I have given so much in charity already, it will count as my zakah!’

Zakah must be paid immediately once it is due.  It should not be delayed unless there is a good reason to do so, like waiting to have access to the poor.

A very common and widespread misunderstanding is that once I have paid zakah on some wealth, I do not have to pay zakah on the same wealth next year.  That is baseless.  In reality, as long as I have wealth above the nisaab, and a complete lunar year has passed on it, I will keep paying zakah on it every year.