fn key on "Magic Keyboard with Numeric Keypad" unable to toggle input language when MacBook Air M1 is closed and connected to external monitor

Welcome Yarmun,

We'd recommend testing this further using safe mode: How to use safe mode on your Mac - Apple Support

How to use safe mode

Determine whether you're using a Mac with Apple silicon, then follow the appropriate steps:

Apple silicon

1. Shut down your Mac.

2. Turn on your Mac and continue to press and hold the power button until you see the startup options window.

3. Select your startup disk, then press and hold the Shift key while clicking “Continue in Safe Mode.”

4. Log in to your Mac. You might be asked to log in again.

Intel processor

1. Turn on or restart your Mac, then immediately press and hold the Shift key as your Mac starts up.

2. Release the key when you see the login window, then log in to your Mac. 

3. You might be asked to log in again. On either the first or second login window, you should see ”Safe Boot” in the upper-right corner of the window.

Use sections, 'If the issue continues in safe mode' and 'If the issue doesn't continue in safe mode' depending on your results there. Keep in mind, booting to safe mode will do some disk repairs and hopefully help us to isolate the behavior further.

You can also isolate this by testing the issue in another user on the Mac. If needed, create an Administrator account, log in, and test the keyboard: Set up users, guests, and groups on Mac - Apple Support This would tell us if the issue is specific to the user or system wide.

We look forward to hearing how it goes, cheers.