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Income Taxes | 12 Months Ended
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Dec. 31, 2025
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, 2025 and 2024 is 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,
| 2025 |  | 2024
Deferred tax assets: |  |  |
Net operating loss carryforwards | $ | 359.9 |  |  | $ | 331.4 |
Net unearned premium | 18.3 |  |  | 8.6 |
Deferred ceding commission | 6.5 |  |  | 13.3 |
Stock-based compensation | 6.1 |  |  | 5.5 |
Depreciation and amortization | 4.8 |  |  | 3.3 |
Charitable contribution | 2.5 |  |  | 2.3 |
Lease liabilities | 1.6 |  |  | 4.3 |
Startup costs | 0.3 |  |  | 0.4 |
Total gross deferred tax assets | 400.0 |  |  | 369.1 |
Deferred tax liabilities: |  |  |
Deferred acquisition costs | (2.5) |  |  | (2.5) |
Right-of-use assets | (1.1) |  |  | (2.5) |
Unrealized gain on investments | (0.6) |  |  | (0.1) |
Total gross deferred tax liabilities | (4.2) |  |  | (5.1) |
Valuation allowance | (395.8) |  |  | (364.0) |
Total deferred tax assets, net | $ | — |  |  | $ | — |
Income tax expense Loss before income tax consists of the following ($ in millions):
| December 31,
| 2025 |  | 2024 |  | 2023
United States | $ | (122.8) |  |  | $ | (170.3) |  |  | $ | (208.5) |
Foreign | (38.1) |  |  | (33.6) |  |  | (21.3) |
Total | $ | (160.9) |  |  | $ | (203.9) |  |  | $ | (229.8) |
Income tax expense consists of the following ($ in millions):
| December 31,
| 2025 |  | 2024 |  | 2023
Current: |  |  |  |  |
Federal | $ | — |  |  | $ | — |  |  | $ | — |
State | 0.1 |  |  | — |  |  | — |
Foreign | 4.5 |  |  | (1.7) |  |  | 7.1 |
Total current | 4.6 |  |  | (1.7) |  |  | 7.1 |
Deferred: |  |  |  |  |
Federal | $ | — |  |  | $ | — |  |  | $ | — |
State | — |  |  | — |  |  | — |
Foreign | — |  |  | — |  |  | — |
Total deferred | — |  |  | — |  |  | — |
Total income tax expense | $ | 4.6 |  |  | $ | (1.7) |  |  | $ | 7.1 |
As of December 31, 2025 and 2024 respectively, $12.9 million and $9.7 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 (loss). The Company accrued and recognized interest expense related to uncertain tax positions of $0.8 million, $0.5 million and $0.4 million for the years ended December 31, 2025, December 31, 2024 and December 31, 2023, respectively. There are no penalties related to the uncertain tax positions for the years ended December 31, 2025 and 2024. 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, 2024 | $ | 9.7 |
Increase on tax positions for prior years | 0.3 |
Increase on tax positions for current year | 2.9 |
Settlements with taxing authorities | — |
Reduction due to lapse of the applicable statute of limitations | — |
Balance at December 31, 2025 | $ | 12.9 |
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 ($ in millions):
| December 31,
| 2025 |  | 2024 |  | 2023
Income tax expense (benefit) at US statutory rate | $ | (33.8) |  |  | 21.0 | % |  | $ | (42.8) |  |  | 21.0 | % |  | $ | (48.3) |  |  | 21.0 | %
State taxes, net of federal benefit | 0.1 |  |  | (0.1) | % |  | (0.1) |  |  | (0.1) | % |  | (0.4) |  |  | 0.2 | %
Foreign tax effects |  |  |  |  |  |  |  |  |  |  |
Stock compensation - Israel | 8.7 |  |  | (5.4) | % |  | 8.3 |  |  | (4.1) | % |  | 8.5 |  |  | (3.7) | %
Other foreign effects | 0.5 |  |  | (0.3) | % |  | 0.3 |  |  | (0.1) | % |  | — |  |  | — | %
Effect of changes in tax laws or rates enacted | — |  |  | — | % |  | — |  |  | — | % |  | — |  |  | — | %
Effect of cross-border tax laws | — |  |  | — | % |  | — |  |  | — | % |  | 0.9 |  |  | (0.4) | %
Tax credits | — |  |  | — | % |  | — |  |  | — | % |  | — |  |  | — | %
Changes in valuation allowance | 29.2 |  |  | (18.1) | % |  | 36.3 |  |  | (17.8) | % |  | 39.7 |  |  | (17.3) | %
Non-taxable or nondeductible items |  |  |  |  |  |  |  |  |  |  |
Stock compensation - US | (5.7) |  |  | 3.5 | % |  | — |  |  | — | % |  | — |  |  | — | %
Other non-taxable or nondeductible items | 2.3 |  |  | (1.4) | % |  | (0.1) |  |  | — | % |  | 1.4 |  |  | (0.6) | %
Change in uncertain tax position | 3.2 |  |  | (2.0) | % |  | (3.6) |  |  | 1.8 | % |  | 5.3 |  |  | (2.3) | %
Other | 0.1 |  |  | (0.1) | % |  | — |  |  | — | % |  | — |  |  | — | %
Total income taxes | $ | 4.6 |  |  | (2.9) | % |  | $ | (1.7) |  |  | 0.8 | % |  | $ | 7.1 |  |  | (3.1) | %
Florida accounted for more than fifty percent of the Company's total state income tax expense for the year ended December 31, 2025. There was no state income tax expense for the years ended December 31, 2024 and December 31, 2023. The Company continues to evaluate its filing positions in other jurisdictions and recognized income tax expense based on enacted laws and regulations. Income Taxes Paid, net of refunds The Company paid income taxes of $2.5 million, $2.5 million and $0.7 million for the years ended December 31, 2025, 2024 and 2023, respectively, and tax refund amounted to $2.4 million and $3.4 million for the years ended December 31, 2024 and 2023, respectively. The components of income taxes paid, net of refunds received were as follows ($ in millions):
|  | December 31,
|  | 2025 |  | 2024 |  | 2023
Foreign - Israel |  | $ | 0.7 |  |  | $ | (2.0) |  |  | $ | (2.9) |
Foreign - Netherlands |  | 1.7 |  |  | 2.1 |  |  | 0.2 |
State |  | 0.1 |  |  | — |  |  | — |
Total income taxes |  | $ | 2.5 |  |  | $ | 0.1 |  |  | $ | (2.7) |
Tax reform in the U.S. The Company elected to apply the "period cost method" to account for Global Intangible Low-Taxed Income (GILTI), and treated it as a current-period expense in its taxable income. Gross inclusion amounted to none for the years ended December 31, 2025 and 2024 and there was $4.1 million for the year ended December 31, 2023. Net operating loss carryforward As of December 31, 2025, the Company has federal losses for tax purposes of $321.0 million, which can be offset against future taxable income. Of this federal loss carryforward, $23.7 million in losses will begin to expire in 2036 and $297.3 million in losses can be carried forward indefinitely. As of December 31, 2025, the Company has state and local losses for tax purposes of $38.9 million which will begin to expire in 2030. The Company's income tax returns for 2022 through 2024 remain subject to examination by the U.S. tax authorities. Inflation Reduction Act The Inflation Reduction Act which was enacted on August 16, 2022, created a new corporate alternative minimum tax (CAMT) which became effective for calendar year January 1, 2023. Based upon projected adjusted financial statement income for 2025 and 2024, 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 2025 and 2024 tax years, 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. One Big Beautiful Bill Act On July 4, 2025, a new U.S. tax legislation was signed into law known as the One Big Beautiful Bill Act of 2025 ("OBBBA") which includes both tax and non-tax provisions. The changes resulting from the tax provisions in OBBBA did not have a material impact on the Company's results of operations.

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