Yes they can claim the expenses with or without your information, all they have to do is say that you refused to give it to them which technically isn't legal. You can use belongings as ransom but I wouldn't ever use tax paperwork as ransom or you can find yourself in a heap of IRS troubles for refusing them this info especially if they asked you for it and provided a w-10 and now that they have it in writing.

Yes it costs money to turn in the debt to a collection agency and from what I was explained (but who knows, maybe different agencies work differently) you need to provide proof that they owe you money. An email of refusal to pay for the money owed could work but a court order is better.

I'd definitively send another notice via certified mail and keep a copy for yourself. Itemize the fees and amount and state that you gave them a deadline which they ignored and that unless they pay you what they owe by Thursday at 5pm that you will be filing in small claims for the amount that they owe, late fees, court costs, legal fees and loss of income for any time that you have to take off from daycare. You might not get all of the late fees but if you prove your case you can get the money you are owed, court fees, loss of income fees (if you have to close daycare and don't charge your clients for the day or if you pay someone to sub for you) and part of the late fees.

Then once you have that order you can give them a deadline to pay the fees or they face sending their account to collections. Collection agencies work 2 ways ... they either "buy" the debt from you and give you a portion of the amount that they owe you and then it's up to them to get payment from the client but regardless of whether or not they ever recover the money you get money OR they try to get the debt from the client and when they do they send it to you minus a % that they keep for recovering the debt.

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