From my research I think the noise is coming from the rubber upper spring seats. It's obvious due to me moving the car up and down when parked and hear the noise coming from that exact area.
My question is should I just replace the rubber upper spring seat, or should I replace that along with the mounting kit? Any advice is greatly appreciated. Thank you.

Pictures are attached.

 

All you really need to replace are the spring seats. Though you will have the strut completely apart, so if there any questions about the serviceability of your struts or upper bearings or bump stops, now is the time to change them out too. When I did mine last summer, I changed the spring seats only.

 

Yep, the 850 spring seats are prone to wear and tear. The classic test is to drive over a speed bump (or railroad tracks if they are in your town) and you will hear a thumping sound from the tops of the struts. Creaking noises can be from the cold or other rubber bushings so best do do a wheels off visual inspection to see if anything looks amiss or has play - sway bar end links are also wear items. If you have any odd driving behavior turning left vs right or tracking true, then you may need to check your control arm bushings.

My experience (having owned my 95 850 Turbo since new for 200K miles and 3 sets of struts) is to shop for the Volvo OEM replacement part - some of the aftermarket parts are not as reliable. The only odd thing about doing 850 struts is that there's a cross shaped nut on the top. I made a special tool by cutting down a small section of pipe... Also jack the car from the center / raise both wheels together or you'll never get the sway bar end link off. And don't forget you'll want an alignment afterwards.

 

Is this a challenging job to do? Do I need any special tools or anything? last question is, do you know a link that may give me step by step instructions or should I just purchase the Chilton on my Volvo. Thanks for info.

 

Use Google, I'm sure Matt's site has some step by step instructions.