Preheat the oven to 350 degrees F (175 degrees C). Grease a 12-cup muffin tin or line cups with paper liners.
Combine butter and sugar in a bowl. Beat using an electric mixer until creamy. Add eggs, 1 at a time, and beat well after each addition. Mix in vanilla extract. Stir flour, baking powder, and salt together in a separate bowl. Alternate adding flour mixture and all the milk in small amounts, mixing well after each addition.
Spoon batter into the prepared muffin cups, filling each 3/4 full.
Bake in the preheated oven until tops spring back when lightly pressed, about 20 minutes. Cool in the tin for 5 minutes. Transfer to a wire rack and let cool completely, about 20 minutes.
Combine cream cheese and butter in a bowl. Beat using an electric mixer until creamy. Add confectioners' sugar 2 tablespoons at a time and mix. Add vanilla extract after 1/2 the confectioners' sugar has been incorporated.
Frost each cooled cupcake with a layer of cream cheese frosting. Place 2 chocolate chips for eyes, 1 red M&M(R) candy for the nose, and 1 gummy worm for the mouth on each cupcake. Place 2 rows of orange M&M's(R) on top to make the hair.