mollymct, I have made a lot of rag quilts, and I always cut my squares 8 1/2" square, and I make a 3/4" seam. I have seen the 8 1/2" squares sewn with a 1" seam and I like the look of that too. I think a 1/2" seam is not enough for that size square. I vote for either a 3/4" seam, or a 1" seam......just my opinion :)