Preheat oven to 350 degrees F. In a large bowl, beat butter, peanut butter, granulated sugar and brown sugar with an electric mixer on medium speed until combined. Add egg and vanilla; beat well.
In a separate bowl, mix the dry ingredients. Gradually add the flour mixture to the butter mixture and stir until blended.
Shape dough into 1-inch balls. Place in greased 1-3/4-inch* (mini) muffin cups. Bake for 8 minutes. Cookies will be golden on top and slightly brown on the edges.
Remove them from the oven and immediately press an unwrapped peanut butter cup into the center of each. Let cool for a couple of minutes in the pan, then carefully remove each cookie and finish cooling on a wire rack. If desired, sprinkle with powdered sugar.