I'm doing a head job & clutch / Flywheel on a 1999 Imreza Outback Sport 2.2L I was installing the rear main seal and ended up having the seal sitting in 1/16 or less from flush? I noticed there is plenty of room behind the seal for oil passage... Any possible problems with it sitting in a little?

 

BTW I'm documenting everything, when I'm done I'll post a link to all the pictures

no problems, just make sure it went in smoothly, went in straight and is sitting straight now. Subaru rear main seals are notorious for leaking after replacement. They are by far the least likely to leak but hardest to set properly as well. If there's any doubt I'd do it again for those reasons. I'd be sure to use a SUbaru OEM seal for this as well.