Place the cream cheese and butter in a large bowl; beat with electric mixer until smooth and creamy. Beat 1/2 cup of confectioners' sugar into the butter mixture. Slowly beat in the flour; mix well. Cover bowl and refrigerate at least 3 hours, or overnight.
Preheat an oven to 375 degrees F (190 degrees C).
On a well floured board, roll out chilled dough to 1/8 inch. Use a pizza wheel to cut dough into 2 1/2 inch squares. Spoon approximately 2 teaspoons of 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 the kolacky in the preheated oven until set but not brown, about 12 minutes. Remove to racks to cool. Dust cooled kolacky with remaining powdered sugar.