In medium saucepan, stir together 1 cup sugar and 1/4 cup flour with whisk.
Continue whisking and add in 1 cup eggnog and nutmeg until no lumps remain.
Heat mixture over medium heat, whisking until mixture comes to a low boil and thickens enough to coat a spoon.
Remove from heat and cool completely, about 45 minutes.
In stand mixer beat 1 cup butter until creamy, about 1 minute.
Pour in cooled eggnog mixture, beating until light and creamy.
If frosting looks curdled or separated, keep beating! It will come together after a few minutes.
Pipe onto cooled cupcakes.
Drizzle with caramel sauce.