This paper presents a thermomechanical model for pseudoelastic shape memory alloys (SMAs) accounting for internal hysteresis effect due to incomplete phase transformation. The model is developed within the finite-strain framework, wherein the deformation gradient is multiplicatively decomposed into thermal dilation, rigid body rotation, elastic and transformation parts. Helmholtz free energy density comprises three components: the reversible thermodynamic process , the irreversible thermodynamic process and the physical constraints of both. In order to capture the multiple internal hysteresis loops in SMA, two internal variables representing the transition points of the forward and reverse phase transformation, $$\phi _s^f$$ and $$\phi _s^r$$ , are introduced to describe the incomplete phase transformation process. Evolution equations of the internal variables are derived and linked to the phase transformation. Numerical implementation of the model features an Euler discretization and a cutting-plane algorithm. After validation of the model against the experimental data, numerical examples are presented, involving a SMA-based vibration system and a crack SMA specimen subjected to partial loading–unloading case. Simulation results well demonstrate the internal hysteresis and free vibration behavior of SMA.