What is Zakat?
Almsgiving is a central activity in Islam. The Qur'an explicitly requires it (9:60) and often places it alongside prayer when discussing a Muslim's duties. ("Perform the prayer and give the alms." 2:43, 110, 277)
For those who are greedy and use their money outside of the will of Allah, the Qur'an has harsh words: the fires of hell will heat up the coins and the greedy will be branded with it (9:34-35).
The zakat is an alms tax, required of every adult Muslim with sufficient means. In many ways it resembles the modern welfare state, in which the "haves" are taxed to help the "have-nots." For most of Islam's history, the tax was enforced by the state. Today it is mostly left up to the individual, except in Saudi Arabia where religious law (Shari'a) is strictly adhered to.
The rate of zakat is 2.5 percent, not of income, but of the value of all of one's possessions. Five categories of goods are taxed: grains; fruit; camels; cattle; sheep and goats; gold and silver; and movable goods. The recipients of the tax are the poor, debtors, slaves seeking to buy their freedom, volunteers in jihad, pilgrims, and the collectors of the tax. (IslamiCity.com has a Zakat Information Center, featuring calculators for determining the amount of your zakat.)
Along with the zakat, both the Qur'an and the Hadith emphasize the importance of voluntary almsgiving (sadaqa) to the needy. In Shi'a Islam, an additional one-fifth tax (khums) must be paid to the Hidden Imam and his representatives for the benefit of orphans, the poor, travelers, and the imams.