Refer back to my original reply. With net losses the calculation on Worksheet 1-3 of IRS Pub 590-A should have resulted in negative numbers on lines 4, 5 and 6, with the amount to be distributed shown on line 7 being less than the $7,000 on line 1. Using Worksheet 1-3 assumes that you timely filed your 2021 tax return, otherwise a return in September 2022 of this contribution was not permissible and the distribution would just be a regular distribution.
Because the custodian distributed the wrong amount, it's not clear how the custodian will be reporting this distribution, but the reporting will not reflect a proper return of contribution. It should be reported on two 2022 Forms 1099-R, one showing a return of contribution with the correct amount (less than $7,000) in box 1 and a zero in box 2 and probably codes 1 and P or 7 and P in box 7, depending on your age, and a second Form 1099-R with just code 1 or code 7 showing the extra amount distributed.
Because it has been less than 60 days since the distribution of the extra amount, you could roll that money back into the IRA assuming that this would not result in a violation of the one-rollover-per-12-months rule. Still, you would need to get the custodian to report the distribution correctly as I described above. If they refuse to do so you would need to file substitute Forms 1099-R to report the distribution correctly.
If this gets sorted out correctly, you would amend your 2021 tax return to correct the Form 8606 to show zero on line 1 instead of $7,000, with that change flowing through the rest of Part I of that form. I would probably not amend anything until you actually have the Forms 1099-R from the custodian near the end of January 2023. When you do amend you'll need to include in the explanation that the amendment is being "Filed pursuant to section 301.9100-2."
