You're right, It would cause issues with other cosmetics.

I think it makes more sense for it to be above it. You can actually just adjust the height of the effect in-game to be inside the head. However, I do not believe it would look too good because there might be a lot of clipping around the head.

I would make it larger and surround the head instead of over the head

bad

this looks sick af i would want this so badly if it was in the game

Looks bad

Goeswith neo's new hat

This is honestly such a cute idea, I love the creativity.