Place chicken pieces in a bowl and add the milk and dill pickle juice. Cover and refrigerate for 60 minutes. After marination, add the egg and stir to coat evenly.
In a large ziplock bag, combine the all-purpose flour, powdered sugar, paprika, salt, garlic powder, and black pepper. Drain off excess marinade and add the chicken to the bag.
Heat peanut oil in a large skillet over medium-high heat. Fry the coated chicken in small batches for 3 to 5 minutes per batch until golden brown and crispy.
Drain on paper towels. For an optional dipping sauce, whisk together mayonnaise, yellow mustard, honey, and lemon juice in a small bowl. Serve the nuggets warm with the dipping sauce on the side.