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. The authors have used two basis sets (H(1s,2s,2p)+Ps(1s,2s,2p) and H(1s,2s,2p)+Ps(1s,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.