WHAT IS ZAKAT

Zakat is one of the five pillars of Islam. Paying Zakat is a requirement for all Muslims who are blessed with wealth and possessions. Zakat is to be paid to people who are in need.  It is given to them as their right under their circumstances.

Unlike the other pillars of Islam, such as the belief in Allah (SWT) as the only one worthy of worship and Prophet Muhammad (S) as His Messenger, Prayer, Hajj, and Fasting during Ramadan, Zakat does not receive sufficient attention in the Muslim community. Efforts need to be increased to educate the community, motivate them to pay, and facilitate their payment.

ZAKAT 101 OUTLINE

  1. Importance of Zakat
  2. Special Nature of Zakat
  3. Benefits of Paying Zakat
  4. Consequences for Not Paying Zakat
  5. Zakat on Personal Wealth
  6. Zakat on Restricted Funds, Loans, and Debts
  7. Who is Eligible to Receive Zakat
  8. Zakat Payment – When and Through Who
  9. Calculation of Zakat Due
  1. Importance of Zakat
    • Zakat is one of the five pillars of Islam, as a Hadith says, “Islam is built on five pillars: Testifying that no one is worthy of worship except Allah and Muhammad is His messenger, performing the prayers, giving the Zakat, fasting in Ramadan and performing Hajj if able” (Hadith – Muslim).
    • Zakat is a specified portion of an individual’s wealth that needs to be given in charity every year.
    • Allah (SWT) has called it “an ordinance from Allah” (Quran 9:60).
    • It is a criterion for being counted among Muslims (Quran 9:11) and
    • Allah (SWT) has joined it with prayer at numerous places in the Quran
      [e.g., 2:43].
  2. Special Nature of Zakat
    • Zakat is a special kind of charity connected to wealth rather than income.
    • Zakat seeks to establish a positive relationship between the giver and receiver of charity.
    • A portion of one’s wealth is required to be set aside even before knowing who needs the charity.
    • The Zakat is given as a right to people in need. There is no sense of favor generated in the giver nor a sense of obligation in the receiver.
  3. Benefits of Paying Zakat
    • Allah (SWT) describes immense rewards for those who give Zakat in many places in the Quran.
    • The term ‘Zakat’ means cleansing and growth. Zakat cleanses the individual’s wealth, heart, and mind of the baser instincts of miserliness, selfishness, greed, and materialism. It replaces them with the noble qualities of generosity, love, care, and mutual help.
    • Zakat seeks to establish a positive relationship between the giver and the receiver of charity. There is no sense of favor generated in the giver nor a sense of obligation in the receiver.
  4. Consequences for Not Paying Zakat
    • Allah (SWT) warns of consequences for those who ‘greedily cling on’ to the wealth (Quran 3:180).
    • Allah (SWT) warns of severe punishment in the Fire of Hell (Quran 9:34-35).
    • “To one who was blessed with wealth but did not pay Zakat, his wealth will appear on the Day of Judgment as a bald serpent with two horns, enwrapping and squeezing him the entire day. Then it will seize him by the lips and tell him, “I am your wealth, your treasure that you hoarded” (Hadith – Bukhari).
  5. Zakat on Personal Wealth
    • Cash in various accounts that is beyond the need for everyday expenses
    • Gold and Silver
    • Jewelry (only the gold and silver content)
    • Stocks
    • The lowest value of the above assets over the past twelve months needs to be included.
    • Zakat applies to the net rental income from real estate owned.
    • See ‘Zakat on restricted funds, loans, and debts’
    • See details elsewhere on ‘Business, farm, and other kinds of wealth.’
  6. Zakat on Restricted Funds
    • Monies held in restricted funds, such as 401(k) that are subject to a penalty and/or taxes are zakatable as follows: calculate the Zakat on the total amount minus the penalty, taxes, and fees you would have to pay. Another opinion is this money is not zakatable when it subjected to a penalty.
    • If you have loaned money out, Zakat is due on that amount if you expect the loan to be repaid. Zakat need not be paid if you do not expect the loan to be repaid.
    • However, if it is repaid unexpectedly, Zakat will be due for one year.
    • Debt – Long Term: If you have a mortgage on real estate, car, etc., and you have a payment plan, then the monthly payments can be taken as your expenses, but the entire mortgage amount cannot be deducted from your wealth for Zakat calculation purposes.
  1. Who is Eligible to Receive Zakat

Quranic verse 9:60 specifies the people and causes that are eligible to receive Zakat. Most applicable today are:

  • The poor (fuqara’): Those who cannot support themselves. The wealth of the recipient should not reach the level of nisab.
  • The needy (masakin): Those who cannot adequately support themselves and are reluctant to ask for help.
  • Those employed to collect, distribute, and administer Zakat (al-‘amilin).
  • Those individuals who have been recently reconciled to the Truth (Mu’allafat-al-Qulub): This category includes new Muslims or those who are willing to support the Muslim State but need compensation.
  • In the cause of Allah (fi-sabil-Allah): Zakat money may go to those who work in the cause of Allah.
  • Zakat cannot be given to parents or children, because their support is the responsibility of the Zakat-giver.
  • Zakat can be given and is preferred to be given to relatives other than the above.
  1. Zakat Payment
    • An Islamic government would collect and distribute Zakat.
    • Muslims living in a non-Islamic government should also endeavor to give Zakat centrally or through their local Masjid.
    • Zakat collected in a community should be distributed to the needy in the community.

 

For further explanations please visit https://zakatchicago.com/zakat-faqs/

You may pay your Zakat to your local Masjid or to Zakat Chicago or share with both.

Zakat Calculation Form

1 Amount of cash saved (Note 1) $____________
2 Current value of owned gold, silver and jewelry $____________
3 Cash value of stocks, shares, etc. (Note 1) $____________
4 Penalty free value of retirement plans projected after tax (e.g., IRA, 401k, etc.) (Note 2) $____________
5 Net rental income $____________
6 Value of trade inventory, cash and receivables, minus payables from business $____________
7 Gross Total Amount

(Add lines 1-6)

$____________
8 Personal net debt (Loans payable this year, minus loans expected to be repaid to you this year) $____________
9 Net Amount

(Subtract line 8 from line 7)

$____________
Compare line 9 with “Nisaab” =$5,025 as of March 31, 2020 (see Note 3). If line 9 is less than Nisaab, enter zero on line 10 and end the calculation.
10 Zakat for this year (Only if line 9 is more than Nisaab, multiply line 9 by 0.025) $____________
11 Zakat payments already made this year, if any $____________
12 Net Zakat Balance Due

(Subtract line 11 from line 10)

$____________

Note 1: You may use the current value for ease of calculation or use the minimum amount during the last twelve months.

Note 2: Alternatively, you may use the value that could be available if you were to withdraw after paying the penalty, fees (if any) and taxes.

Note 3: Nisaab is taken as the value of 3 ounces of gold. Since the gold price fluctuates, you may update it with the current value.

 

zakatchicago.com — Zakat Chicago (CIOGC) — 231 South State Street, #300, Chicago IL 60604