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."

The first-year premium is $22.50 for every $150 of federal tax liability to a maximum of $800 per person or $1,600 per couple. The individual rate climbs to $1,050 and the couple rate, to $2,100 by 1993.

Essentially, all elderly couples earning more than $10,000 will be subject to the tax. A single person will be subject to taxation if his income exceeds $5,600.

Starting in 1989, the federal Department of Health and Human Services will begin notifying eligible people of the surtax. Department officials also will notify the Internal Revenue Service, so the IRS can watch for the Medicare surtax on the Form 1040s of the affected taxpayers.

Money managers say the key to the surtax is its link to tax liability.

"Some of them think it's based on their income, and it's not," said Steve Maddox of Edward D. Jones & Co. in Wichita, Kan. "Someone who earned $100,000, all in tax-free bonds, wouldn't pay a dime for Medicare. But someone who has all their money in CDs (certificates of deposit) would pay a lot.

"It has nothing to do with the rich or the poor," Maddox said. "It's how you manage your funds."

How taxpayers tackle the surtax depends on their situation, money managers said.

One of the first things retirees can do, planners said, is shift as much of their income into the 1988 tax year to avoid paying the surtax. Annuities, municipal bonds and other investment vehicles that offer tax-free income figure to attract attention as well.

Annuities come in a variety of forms, but generally they guarantee a certain return for a specified period. Interest generated by municipal bonds can be partly or wholly tax-free, depending on the local state and city laws.

The bonds can be purchased in several ways - individually, through a non-managed trust, or a municipal bond mutual fund.

Some taxpayers can't do much to reduce their taxable income, however. Their income is set through defined benefit pension plans set up when they were still working. All of that money is fully taxable.

"There's no way to stop that," Moore said. "What we can do is look and see if they have some other income in addition, such as money from a passbook savings account or CDs ... That can be reinvested for higher income. That can be a source of dollars to pay for the tax burden."

Retired taxpayers who have no need for additional income can acquire deferred annuities or single premium life insurance policies, which can be used in estate planning. The policies can be converted to annuities, Moore said, if the buyers find themselves unexpectedly in need of income in the future.

"You have to do total income tax planning" to plan properly for the catastrophic-care premium, Moore said.

"Even if you do pay some catastrophic-care premium, don't forget there's substantial improvements in Medicare," he said.

The bill guarantees a Medicare beneficiary unlimited free hospitalization after payment of an annual deductible, estimated at $564 for 1989. Other benefits affected include: doctor bills, drugs, nursing home care, respite care, home health care, hospice care, mammograms, Medicaid and spousal impoverishment and other costs.

"It's not all just some kind of bloodsucking tax," Moore said. "But there's no sense in paying more tax than you have to."