1Bring 1/2 cup plus 2 tablespoons sugar and the water to a boil in a medium saucepan. Wash sides of pan with a wet pastry brush to prevent sugar crystals from forming. Cook, undisturbed, until caramel is dark amber. Remove from heat, and slowly add cream, stirring with a wooden spoon until smooth. Let cool.
Beat butter with a mixer on medium speed until pale and fluffy, about 3 minutes. Transfer to a large bowl.
Place whites and remaining 1/2 cup sugar in a heatproof mixer bowl set over a pot of simmering water. Whisk until sugar dissolves and mixture registers 160 degrees on a candy thermometer.
Remove from heat, and attach bowl to a mixer. Whisk on medium speed for 5 minutes. Increase speed to medium-high, and whisk until stiff, glossy peaks form, about 6 minutes. Reduce speed to medium, and add beaten butter, cup at a time, whisking well after each addition. Whisk in vanilla.
Switch to paddle attachment. With mixer on low speed, add caramel, and beat until smooth, 3 to 5 minutes. Use immediately, or cover, and refrigerate for up to 3 days. (Bring to room temperature, and beat on low speed until smooth before using.)
Read more at Marthastewart.com: Caramel Buttercream - Martha Stewart Recipes