A method of manufacture of an integrated circuit packaging system includes: providing a package substrate having an outer pad at a substrate top side; forming a resist layer directly on the substrate top side, the resist layer having a resist top side with a channel array adjacent the outer pad exposed from the resist layer; mounting an integrated circuit having an active side facing the resist top side, the integrated circuit having a non-horizontal side adjacent the outer pad; and forming a dielectric between the active side and the resist top side, the dielectric having a fillet extended from the non-horizontal side to the substrate top side inside an inner extent of the channel array.