Why am I getting the message "You currently have a penalty because tax payer made an excess contribution of 7000 to Roth IRA" even tho I did it all correctly in 2024.

To clarify, you are trying to enter a backdoor Roth and you have a 2024 Form 1099-R with code 2 (if under 59 1/12)?

If yes, then it seems you entered a recharacterization instead of conversion. A conversion is entered by enter your Form 1099-R and indicating in the follow-up questions that you converted the money to the Roth IRA. Please edit your entry in the IRA contribution interview:

 Click on "Search" on the top right and type “IRA contributions” 

1. Click on “Jump to IRA contributions"
2. Select “traditional IRA”
3. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
4. Enter the amount you contributed
5. Delete the entry on the "Tell Us How Much You Transferred" screen (this is for recharacterizations).
6. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
7. Enter your basis in the Traditional IRA from your 2023 Form 8606 line 14 (if you had a basis in the prior year)
8. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

Please review How do I enter a backdoor Roth IRA conversion?