I know that Iptables is a user-space module, I also read it "configures" kernel modules to do big part of the filtering. So my question is, if I add a rule to allow only TCP:443 packets, would this be handled at the kernel level?
According to one Linux distribution, and I would assume most are relatively similar, iptables is a command line utility for configuring Linux kernel firewall implemented within the Netfilter project, at least in Arch Linux.
According to Wikipedia,
Netfilter is a framework provided by the Linux kernel that allows various networking-related operations to be implemented in the form of customized handlers. Netfilter offers various functions and operations for packet filtering, network address translation, and port translation, which provide the functionality required for directing packets through a network, as well as for providing ability to prohibit packets from reaching sensitive locations within a computer network.
As such, the answer that I would say is yes. Filtering is done at the kernel level.