> How does this work? Are these people somehow paying taxes regardless of their immigration status?

Some jobs are cash jobs, the employer doesn't report the income and the employee likely doesn't either, this isn't legal for the employer or the employee, but enforcement is uneven.

For jobs with proper payroll, income reporting and employment tax withholding, it's common to 'borrow' someone else's tax id. That's not legal either of course, although the employer may be ok if they were reasonably unaware of the borrowing. If the borrowed tax id is only used for work by one person, and the withholding is close to correct (or a tax return is filed for that tax id), then taxes are being paid properly, even if they're attributed incorrectly. If the tax id is used by multiple people, then the combined income might be subject to a larger tax than if earned by multiple tax ids, and withholding is likely to be iffy (withholding tables are built around a single job).

I think I've heard of ways for someone without work authorization to get their own tax idea so they can have make properly attributed tax payments, but I don't remember the details.