If an employee steals what is the law on witholding their last paycheck

That you need to give the employee his or her wages in full. If the employee stole from the company, that is an entirely separate matter and needs to be handled separately. File a criminal complaint with the police and if a judge doesn't order restitution, then you can sue the employee for the value of the item(s) taken. But you can't withhold their paycheck.