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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Corporate tax rates
Lemonade, Inc., together with its U.S. subsidiaries, is taxed under the tax laws of the United States and the statutory enacted corporate income tax rate for the years ended December 31, 2022 and 2021 is approximately 21%.

The Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), which reduced the corporate income tax rate to 23%.

The statutory enacted corporate tax rate in the Netherlands is approximately 25%.
Deferred taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company's deferred tax assets are comprised of operating loss carryforwards and other temporary differences.
The components of the net deferred tax assets are as follows ($ in millions):
December 31,
2022 2021
Deferred tax assets:   
Net operating loss carryforwards$262.2 $127.4 
Deferred ceding commission8.6 7.8 
Lease liabilities5.6 3.4 
Unrealized loss on investments5.5 — 
Net unearned premium5.3 2.6 
Stock-based compensation3.7 2.4 
Charitable contribution1.6 0.9 
Startup costs0.5 0.7 
Other— 0.6 
Total gross deferred tax assets293.0 145.8 
Deferred tax liabilities:
Right-of-use assets(3.8)(3.3)
Depreciation and amortization(1.0)(2.2)
Deferred acquisition costs(1.4)(1.3)
Other(3.8)— 
Total gross deferred tax liabilities(10.0)(6.8)
Valuation allowance(283.0)(139.0)
Total deferred tax assets, net$— $— 
Income tax expense
Loss before tax consists of the following ($ in millions):
December 31,
202220212020
United States$(225.5)$(240.3)$(123.6)
Foreign(69.3)6.7 2.8 
Total$(294.8)$(233.6)$(120.8)
Income tax expense consists of the following ($ in millions):
December 31,
2022 20212020
Current:   
Federal$— $— $— 
State— — — 
Foreign3.0 7.7 1.5 
Total current3.0 7.7 1.5 
Deferred:
Federal$— $— $— 
State— — — 
Foreign— — — 
Total deferred— — — 
Total income tax expense$3.0 $7.7 $1.5 
As of December 31, 2022 and 2021 respectively, $8.0 million and $0, if recognized, would decrease the effective tax rate. The 2022 increase of $8.0 million relates to the implementation of the transfer pricing methodology.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. For the years ended December 31, 2022 and 2021, respectively, the Company did not accrue and recognize interest expense related to uncertain tax positions.

We do not believe it is reasonably possible that our unrecognized tax benefits could increase or decrease within the next 12 months.

Balance at December 31, 2021$— 
Increase (decrease) on tax positions for prior years— 
Increase (decrease) on tax positions for current year8.0 
Settlements with taxing authorities— 
Reduction due to lapse of the applicable statute of limitations— 
Balance at December 31, 2022$8.0 

The provision for federal and foreign income taxes incurred is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes.
A reconciliation of the Company's statutory income tax rate to the Company's effective income tax rate is as follows:
December 31,
2022 20212020
Income at US statutory rate21.0 %21.0 %21.0 %
State taxes, net of federal benefit2.5 %(8.4)%12.8 %
Permanent differences(3.7)%(1.7)%(1.2)%
Return to provision— %(0.9)%— %
Foreign rate differential0.2 %0.6 %0.2 %
Valuation allowance(18.1)%(13.7)%(33.9)%
Uncertain tax position(2.7)%— %— %
Other(0.2)%(0.2)%(0.1)%
Total income taxes(1.0)%(3.3)%(1.2)%
Tax reform in the U.S.
The Company selected to apply the "period cost method" to account for the Global Intangible Low-Taxed Income, and treated it as a current-period expense for December 31, 2022, 2021 and 2020 and had a gross inclusion of $0.0 million, $14.0 million and $5.0 million respectively, in its taxable income.
Net operating loss carryforward
As of December 31, 2022, the Company has federal losses for tax purposes of $236.3 million, which can be offset against future taxable income. Of this federal loss carryforward, $15.7 million in losses will begin to expire in 2035 and $220.6 million in losses can be carried forward indefinitely. As of December 31, 2022, the Company has state and local losses for tax purposes of $25.8 million which will begin to expire in 2030.
The Company's income tax returns for 2019 through 2021 remain subject to examination by the U.S.
tax authorities.

Inflation Reduction Act

On August 16, 2022, the President of the United States signed into law the Inflation Reduction Act (“ACT”), which included a new corporate alternative minimum tax (“CAMT”). The ACT and CAMT is effective for tax years beginning after 2022. Based upon the projected adjusted financial statement income for 2023, the reporting entity (or the controlled group for which the reporting entity is a member) has determined that average “adjusted financial statement” is below the threshold for the 2023 tax year such that it does not expect to be required to perform the CAMT calculations nor be liable for any CAMT.