Preheat oven to 350°F. For the Cupcakes, mix flour, granulated sugar, baking powder, cinnamon, nutmeg and salt in large bowl. Add oil, eggs and vanilla; mix well. Add carrots; mix until well blended. Spoon batter into 24 paper-lined muffin cups, filling each cup 2/3 full.
Bake 20 minutes or until toothpick inserted into cupcake comes out clean. Cool in pans on wire rack 5 minutes. Remove from pans; cool completely.
For the Frosting, beat cream cheese, butter and lemon extract in large bowl until light and fluffy. Gradually beat in confectioners' sugar until smooth. If frosting is too thick to spread, gradually beat in milk. Frost cooled cupcakes with frosting.