The state unemployment tax is a rate charged by state governments to employers on a tranche of each employee’s pay. The resulting tax payment goes into a state-managed fund that is used to compensate people who have been terminated from their jobs. The rate charged and the size of the pay tranche against which the rate is applied varies by state. In addition, a state government will alter the tax based on an employer’s history of employee terminations. If few people have been let go, then the tax rate will be reduced, sometimes by a substantial amount.