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Income Taxes
 12 Months Ended
Dec. 31, 2024
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, 2024 and 2023 is approximately 21%.

The statutory enacted corporate tax rate in Israel, the Netherlands and the United Kingdom is 23.0%, 25.8% and 25.0%, respectively.
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,
2024 2023
Deferred tax assets:   
Net operating loss carryforwards$331.4 $299.5 
Deferred ceding commission13.3 8.5 
Net unearned premium8.6 6.6 
Stock-based compensation5.5 5.3 
Lease liabilities4.3 4.7 
Depreciation and amortization3.3 1.4 
Charitable contribution2.3 2.0 
Unrealized loss on investments— 0.9 
Startup costs0.4 0.5 
Total gross deferred tax assets369.1 329.4 
Deferred tax liabilities:
Right-of-use assets(2.5)(2.4)
Deferred acquisition costs(2.5)(1.8)
Unrealized gain on investments (0.1)— 
Other— (2.8)
Total gross deferred tax liabilities(5.1)(7.0)
Valuation allowance(364.0)(322.4)
Total deferred tax assets, net$— $— 
Income tax expense
Loss before income tax consists of the following ($ in millions):
December 31,
202420232022
United States$(170.3)$(208.5)$(225.5)
Foreign(33.6)(21.3)(69.3)
Total$(203.9)$(229.8)$(294.8)
Income tax expense consists of the following ($ in millions):
December 31,
2024 20232022
Current:   
Federal$— $— $— 
State— — — 
Foreign(1.7)7.1 3.0 
Total current(1.7)7.1 3.0 
Deferred:
Federal$— $— $— 
State— — — 
Foreign— — — 
Total deferred— — — 
Total income tax expense$(1.7)$7.1 $3.0 
As of December 31, 2024 and 2023 respectively, $9.7 million and $13.3 million of unrealized tax benefits, if recognized, would decrease the effective tax rate.

The activity in unrecognized tax benefits for the year ended December 31, 2024 is related to establishing additional reserves for its foreign jurisdictions, and offset by a change in estimate resulting from updated benchmarking analyses in the current year.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations and comprehensive income. The Company accrued and recognized interest expense related to uncertain tax positions of $0.5 million and $0.4 million for the years ended December 31, 2024 and 2023. There are no penalties related to the uncertain tax positions for the years ended December 31, 2024 and 2023.

The Company believes it is reasonably possible that our unrecognized tax benefits could increase or decrease within the next 12 months.

Balance at December 31, 2023
$13.3 
Decrease on tax positions for prior years
(6.9)
Increase on tax positions for current year
3.3 
Settlements with taxing authorities— 
Reduction due to lapse of the applicable statute of limitations— 
Balance at December 31, 2024
$9.7 

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,
2024 20232022
Income at US statutory rate21.0 %21.0 %21.0 %
State taxes, net of federal benefit3.1 %2.0 %2.5 %
Permanent differences(4.5)%(5.0)%(3.7)%
Return to provision0.1 %— %— %
Foreign rate differential0.4 %0.3 %0.2 %
Valuation allowance(21.0)%(19.1)%(18.1)%
Uncertain tax position1.8 %(2.3)%(2.7)%
Other(0.1)%— %(0.2)%
Total income taxes0.8 %(3.1)%(1.0)%
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 in its taxable income. Gross inclusion amounted to $4.1 million for the year ended December 31, 2023 and there was none for the years ended December 31, 2024 and 2022.
Net operating loss carryforward
As of December 31, 2024, the Company has federal losses for tax purposes of $296.2 million, which can be offset against future taxable income. Of this federal loss carryforward, $10.5 million in losses will begin to expire in 2035 and $285.7 million in losses can be carried forward indefinitely. As of December 31, 2024, the Company has state and local losses for tax purposes of $35.3 million which will begin to expire in 2029.
The Company's income tax returns for 2021 through 2023 remain subject to examination by the U.S. tax authorities.

Inflation Reduction Act

The Inflation Reduction Act, which created a new corporate alternative minimum tax (CAMT) effective for calendar year taxpayers January 1, 2023, was enacted on August 16, 2022. Based upon projected adjusted financial statement income for 2024 and 2023, the reporting entity (or the controlled group of corporations of which the reporting entity is a member) has determined that average "adjusted financial statement income" is below the thresholds for the 2024 and 2023 tax year such that it does not expect to be required to perform the CAMT calculations, nor be liable for any CAMT.

382 Limitation

On March 12, 2018, the Company underwent a change of control under Section 382 of the Internal Revenue Code by the purchase of interest by additional investors. Accordingly, a portion of the Company’s deferred tax assets are subject to an annual limitation under Section 382. The annual deduction limitations apply to approximately $43.0 million of net operating losses. The Company is not expected to write off any deferred tax assets as a result of these limitations. The Company may experience ownership changes in the future as a result of subsequent shifts in our stock ownership.

Bermuda Corporate Income Tax Regime

On December 18, 2023, Bermuda enacted a 15% corporate income tax regime (the “Bermuda CIT”) that applies to Bermuda businesses that are part of multinational enterprise groups with annual revenue of €750 million or more and is effective for tax years beginning on or after January 1, 2025. The Company does not expect that this will impact income tax provision until the Company meets the required annual revenue threshold.