Liquid-liquid phase separation (LLPS) is driven by weak multi-valent interactions. Such interactions can result in the formation of puncta in cells and dropletsin vitro. The heterochromatin protein HP1α forms droplets with chromatinin vitroand is found in puncta in cells. A common approach to visualize the dynamics of HP1α in cells is to genetically encode fluorescent tags on the protein. HP1α modified with tags such as GFP has been shown to localize to dynamic punctain vivo. However, whether tagged HP1α retains its intrinsic phase separation properties has not been systematically studied. Here, using different C-terminal tags (AID-sfGFP, mEGFP, and UnaG), we assessed how tag size and linker length affected the phase separation ability of HP1α with DNAin vitro. We found that the AID-sfGFP tag (52 kDa) promoted HP1α phase-separation, possibly driven by the highly disordered AID degron. The mEGFP tag (27 kDa) inhibited phase-separation by HP1α, whereas an UnaG tag (13 kDa) with a 16 amino acid linker showed minimal perturbation. The UnaG tag can thus be used in cellular studies of HP1α to better correlatein vitroandin vivostudies. To test if cellular crowding overcomes the negative effects of large tagsin vivo, we used polyethylene glycol (PEG) to mimic crowdingin vitro. We found that addition of 10% PEG8000 or PEG4000 enables phase separation by GFP-tagged HP1α at comparable concentrations as untagged HP1α. However, these crowding agents also substantially dampened the differences in phase-separation between wild-type and mutant HP1α proteins. PEG further drove phase-separation of Maltose Binding Protein (MBP), a tag often used to solubilize other proteins. These results suggest that phase-separation of biological macromolecules with PEG should be interpreted with caution as PEG-based crowding agents may change the types of interactions made within the phases.