The code 1 on the Form 1099-R showing the portion withheld for taxes indicates that you were under age 59½ at the time of this distribution, so TurboTax is correctly applying the 10% early-distribution penalty to this portion and ThomasM125 said. With $1,764.71 of the distribution not being rolled over, that penalty is $176.
To avoid the $1,764.71 being subject to this penalty you would have to claim a valid penalty exception of Form 5329. However, you haven't mentioned anything that would qualify you to claim such an exception. In addition to the usual penalty exceptions for distributions from a 401(k) (https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distri...), you could also avoid the penalty if you qualified to receive a coronavirus-related distribution (CRD). Claiming this as a CRD, if eligible, would also allow you to spread the $1,764.71 of taxable income over 2020, 2021 and 2022 in equal parts.
