Place cream cheese and butter in a large bowl; beat with an electric mixer until smooth and creamy. Beat 1/2 cup confectioners' sugar into butter mixture. Slowly beat in flour; mix well. Cover the bowl and refrigerate for at least 3 hours or overnight.

Preheat the oven to 375 degrees F (190 degrees C).

Roll out chilled dough to 1/8-inch thickness on a well-floured board. Use a pizza wheel to cut dough into 36 (2 1/2-inch) squares.

Spoon about 2 teaspoons filling in the center of each square; do not overfill. Fold opposite corners of each square into the middle to encase dough, pinching dough together in center. Filling should peek out a little at each end. Transfer cookies to an ungreased baking sheet.

Bake in the preheated oven until set but not brown, about 12 minutes. Remove to racks to cool. Dust cooled kolacky with 1/4 cup powdered sugar.