Profile pictures are square and displayed as a circle. The cutout needs to be cropped to square before uploading. Instagram does not accept transparent images for profile pictures. You need to composite the cutout over a background first.
Stories and Reels accept transparent PNGs, but the platform overlays interface elements at the top and bottom of the frame. If you are placing a cutout as a sticker, leave the top hundred pixels and bottom two hundred pixels mostly empty.
Feed posts do not accept transparent images directly. You upload a JPG or PNG with a solid background. If you want transparency, the trick is to composite the cutout over your feed background, screenshot the result, and upload the screenshot.