SIZABLE INCREASE IN MEDICARE SURTAX AWAITS ELDERLY IN '89

Many elderly taxpayers may not have paid attention to the brochure that came with their October Social Security checks.

They should have.The notice is the first news for many elderly taxpayers of the big tax increase that lies ahead in tax year 1989. People eligible for Medicare could see a 25 percent increase in their tax bills in the next two years - a painful financial punch to the unwary and unprepared.

"If the older population knew about this tax, they'd be up in arms," said Ruth Zakowski of Singer, Lewak, Greenbaum & Goldstein in Los Angeles. She and others say the public hasn't absorbed the full potential impact of the tax. "I think it's going to hurt a lot," she said.

The increase comes in the form of a supplemental premium provision tacked on to the Medicare Catastrophic Health Care Act, which becomes law on Jan. 1 and provides for dramatically expanded Medicare coverage.

What it means is that people 65 or older who pay federal income taxes will foot most of the bill for the expanded health care through a surcharge on their tax payments.

Officials estimate the new surtax will pay an estimated 63 percent of the new program, and adjustments in Medicare's Part B premiums - a voluntary medical insurance program that pays for doctor bills - will make up the remainder. The supplemental premium will not be deductible as a medical expense.

"They're trying to shift the burden of funding these programs to the population that could afford to use it and pay for it - those over 65 who are making money," Zakowski said. "It's shifting it to the people who are reaping the benefits of it."

The surtax applies to all people older than 65 and amounts to 15 percent of a person's federal tax liability in tax year 1989. In 1990, the figure jumps to 25 percent.

By some estimates, only about one-third of all single senior citizens and one-half of all elderly couples will have to pay federal taxes, thus becoming exposed to the tax.

"By the time they take their allowable exemptions and deductions, many retired people don't have a reportable income," said Tom Moore, a vice president for A.G. Edwards and Sons in St. Louis. "But it's obviously a concern for anyone who has to pay income taxes. I wouldn't want to be retired and faced with a 25 percent tax increase."