Place egg whites in a large bowl; let stand at room temperature 30 minutes. Preheat oven to 350°. Line 24 muffin cups with paper liners.
In a large bowl, cream butter and 1-1/4 cups sugar until light and fluffy. Add egg yolks, one at a time, beating well after each addition. In another bowl, whisk flour, baking powder, nutmeg and salt; add to creamed mixture alternately with eggnog, beating well after each addition.
With clean beaters, beat egg whites on medium speed until soft peaks form. Gradually add remaining sugar, 1 tablespoon at a time, beating on high after each addition until sugar is dissolved. Continue beating until stiff glossy peaks form. Fold into batter.
Fill prepared muffin cups three-fourths full. Bake 18-22 minutes or until a toothpick inserted in center comes out clean. Cool in pans 10 minutes before removing to wire racks to cool completely.
For frosting, in a large bowl, beat cream cheese and butter until blended. Gradually beat in confectioners’ sugar and eggnog until smooth. Frost cupcakes. Sprinkle with nutmeg. Refrigerate leftovers.