Bristol City Council was told it was illegal to offer money off the tax.
The authority had to settle for a prize of £200, which will be awarded to people that use their black box correctly, are picked by council officers and answer a question correctly.
Liberal Democrat council chairman Gary Hopkins said: A £200 prize is a significant amount of money for most people. In the long term, it will save the council money because it will help to improve our recycling rates.
A spokesman added: The lawyers told us the Council Tax idea could not be done, but perhaps the legislation will change. The council sees incentives as crucial to raising recycling rates.