1. Preheat oven to 350°F (180°C). Line 2 baking sheets with parchment paper.
2. Place butter and peanut butter in a large bowl. Using an electric mixer, beat on high until very creamy.
3. Beat in ½ cup (125 mL) sugar until well blended. Then beat in egg yolks, one at a time, scraping down sides as needed. Beat in vanilla and then flour until combined.
4. Place 3 tbsp (45 mL) sugar in a shallow dish. Form dough into 1-inch (2.5-cm) balls, and roll in the sugar. Place on prepared baking sheet about 2 inches (5 cm) apart. Use your finger to press into centre of each dough ball to form an indent.
5. Bake in preheated oven for 10 minutes. Remove from oven, place a peanut butter cup in indent and then continue to bake until golden and set, about 6 to 8 more minutes.
6. Remove to a rack to cool completely. When completely cool, dust with icing sugar.