Yes, you entered correctly the contribution amount (and not the distribution amount) on the penalty screen during the IRA contribution interview on your 2021 return.
Yes, $12,592 is a combination of your and your wife's 2022 Form 1099-Rs with code 8J.
You can either not enter the $7,000 Roth contribution at all since you withdrew it in 2022 (therefore the note not to enter it) or enter it and then enter on the penalty screen that you removed the $7,000 excess contribution before the due date.
No, don't enter anything for Excess Contributions for Prior Years, you removed the 2021 excess before the due date of the 2021 return and therefore you don't have an excess from prior years.
When everything is entered correctly you should not have a 6% penalty on your 2021 or 2022 return.
Please make sure that you include the 2022 Form 1099-R with codes P and J on your 2021 return if you haven't done this before. Please see How do I amend my federal tax return for a prior year?
@SteveKoz
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