The close-coupling approximation (CCA) has been used to investigate positronium formation into the n = 1 and n = 2 levels for the positron-hydrogen system. The solution has been obtained by solving integral Lippmann-Schwinger equations in momentum space. We have used two basis sets (H( Is, 2s, 2p) + Ps( Is, 2s, 2p) and H( Is, 2s, 26) + Ps(ls, 2s, 2p)), which make some allowance for short-and long-range correlation effects in both the incident and positronium channels. These are the first close-coupled results for Ps(n = 2) formation. The effect of adding polarization in the positronium channel is found to be significant for Ps formation. A new feature of the present calculations is the use of Gaussian basis functions in the evaluation of the rearrangement matrix elements.